ACCESS TO INNOVATIONS AND DEVELOPMENTS IN THE GREEN ECONOMY
VX2011: CALIFORNIA HOLDS
COURSE ON CLIMATE CHANGE
The following excerpts
are from a panel titled “AB
32: Sustaining California’s
Climate Change Leader-
ship Role in North America:
Opportunities, Challenges,
and Lessons Learned” at
VX2011 Los Angeles. The
excerpts feature managers
from Southern Californian
JAMES GOLDSTENE utilities—agencies with
some of the most at stake
with the ongoing implementation of AB 32. The
panel included moderator James Goldstene,
executive officer of CARB, and panelists Ron
Nichols, GM of L.A. DWP, and Mike Hertel, direc-
tor of environmental policy for SoCal Edison.
James Goldstene (California Air Resources
Executive Officer): In 2007, under AB 32,
CARB adopted what is called the Scoping
Plan, which was the range of measures that
would work together to meet our 2020 green-
house gas targets: to bring our greenhouse
gas emissions back to 1990 levels. We now
have adopted all the primary regulations that
we had envisioned, which included the Low
Carbon Fuel Standard and cap and trade. We
also adopted land use policies under another
piece of legislation called SB 375.
It’s in the context of this regulatory envi-
ronment where one of our goals is to make
(continued on page 16)
www.vxcanada.ca/
www.verdexchange.org
INSIDE:
pg 2-3 PEOPLE/POLICIES/LEGISLATIVE UPDATE
pg 4 GREEN FOR THE BUILT ENVIRONMENT, VX2011 Panel
pg 5 SHOW ME THE MONEY!, VX2011 Panel
SPRING 2011 VOL. 5 NO.
U.S. CONGRESS MOVING BILL TO UNDERCUT U.S. EPA:
MARY NICHOLS OP-ED
The political winds in Washington D.C. shifted in November. Just when
the U.S. Environmental Protection Agency (EPA) was gaining greater
and more expansive powers to regulate carbon emissions in lieu of
comprehensive federal legislation, the U.S. House of Representatives
moved the “Energy Tax Prevention Act of 2011,” which would
effectively strip the EPA of the power to regulate carbon emissions
under the authority of the Federal Clean Air Act. In the following
exclusive op-ed, California Air Resources Board Chair Mary Nichols
details the consequences of such legislation.
MARY NICHOLS
Nichols: The proposed “Energy Tax Pre- dioxide and other greenhouse gases to
vention Act of 2011” intends to strip the be harmful air pollutants and ordered
U.S. Environmental Protection Agency (EPA) the EPA under the Bush administration
of any authority to regulate global warm- to consider whether they should be
ing carbon emissions from vehicles, large regulated under the Clean Air Act.
factories, and power plants by reversing a
Supreme Court decision that found carbon (continued on page 24)
VX2011 PANEL: STRATEGIC USES OF INTERNATIONAL
CAPITAL MARKETS FOR CLEAN TECH GROWTH
The following excerpts are from the VX2011 Los Angeles panel: “Strategic
Uses of Capital Markets to Support Clean Tech Growth: U.S./Canada/
E.Asia/Latin America.” The panel discussed a broad range of themes
pertaining to international capital markets: IPOs, countries, such as
Brazil and Canada, and solutions to the debt problem—presenting an
integrated solution to market growth for clean tech. The panel included
(among others) moderator Julian Gresser from Manatt, Phelps, and Phil-
lips; Mario Marconini from Brazil; and Tom Rand from Toronto.
JULIAN GRESSER
Julian Gresser (Manatt): The theme of panies have 40, 50, 60 times earnings and
today’s panel grows out of a real case, real foreign companies are puddling around
practical experience, which we’re in the at 12 PEs? Why don’t we have the idea of
process of elaborating in China, Brazil, and taking foreign companies public in Japan?
other countries. In the mid-80s, I was sitting I called my client, Arthur Anderson, and I
in a Tokyo hotel room and had an idea...I
said to myself...how is it that Japanese com-
said, how about it?
(continued on page 19)
pg 6-7 GREEN NOTES
pg 8 ‘ONE WATER’, VX2011 Panel
pg 28 ENTERPRISE FORUM, JIM KELLY, SOUTHERN CALIFORNIA EDISON
verdexchange news SPRING 2011
PEOPLE / POLICIES BRIEFLY
The New York Times published the top
ten U.S. states for installed solar capacity: 1)
California (971 mw), 2) New Jersey (293
mw), 3) Colorado (108 mw), 4) Arizona
(101 mw), 5) Nevada (97 mw), 6) Florida
(73 mw), 7) New York (54 mw), 8) Pennsyl-
vania (54 mw), 9) New Mexico (45 mw), and
10) North Carolina (42 mw).
Google bought a $55 million stake in the
1.5 gw Terra-Gen Power Alta Wind Ener-
gy Center (AWEC) under construction in the
Mojave Desert.
U.K. Deputy Prime Minister Nick Clegg
announced that the Green Investment Bank
will begin lending as early as April 2012.
London announced plans to build a new,
£4 million facility in Bexley to turn the city’s
garbage into usable fuel. The plant is sched-
uled to open in 2013.
Elizabeth May, elected in May, is the first
member of the Canadian Green Party elect-
ed to Parliament.
The U.S. DOE added Tesla Motors and
the Electric Power Research Institute to the
U.S. DRIVE program (formerly known as
the FreedomCAR and Fuel Partnership).
Oil prices have reached their highest point
since September of 2008. U.S. crude reached
$108.74 a barrel on April 11, 2011.
New Zealand has announced plans to cut
carbon emissions in half by 2050. New Zea-
land already has a carbon trading market in
place, which the government plans to expand
to the agricultural sector, which is responsible
for nearly half of New Zealand’s emissions.
Venture capital investment in clean tech
firms reached its highest point ever in the first
quarter of 2011, with more than $2.5 billion
in deals. 85 percent of that investment came
from North America, with solar energy firms
the biggest winner by far, followed distantly
by producers of electric vehicles.
The EU’s Climate Action Commissioner,
Connie Hedegaard, has announced that Eu-
rope will look to integrate its carbon-trading
program with a similar program in California
set to launch next year.
Google has invested $168 million in
BrightSource Energy, developers of the
Ivanpah solar thermal power plant, which,
when completed in 2013, will be the largest
solar power plant in the United States.
The Coachella Valley Housing Coalition
was awarded the DOE 2011 EnergyStar
Award for excellence in affordable housing.
2
The U.S. Ninth Circuit Court of Appeals
set June 10 as the date it will hear arguments
in the long-running case between the trucking
industry and portions of the Port of Los Angeles
drayage modernization program.
South Korea announced plans to expand its
network of bullet trains so that it is accessible to
83 percent of its population. The $14.6 billion
investment will reduce GHG emissions by 7.7
tons a year.
According to a recent study by Green Energy
Markets, 7 percent of electricity in Australia
is produced by renewable sources—down from
19 percent in 1960.
U.S. Energy Secretary Steven Chu and
L.A. Mayor Antonio Villaraigosa celebrated
the installation of the 500th electric vehicle
charging station in May. Secretary Chu
predicted that $25,000, 350-mile-per-charge
electric vehicles can be a reality by 2017.
A team of researchers from Columbia
University released a study estimating that
the global trend of warmer temperatures has
reduced wheat yields by 5.5 percent and corn
yields by 3.8 percent.
The government of Quebec has unveiled the
“Plan Nord,” which would open 1.2 million
square kilometers in the north of the province
to mining, hydroelectric projects, forestry, and
infrastructure development.
The Arctic Monitoring and Assessment
Program released a report finding that ice
in Greenland and the Arctic is melting faster
than expected, possibly contributing to raising
global sea levels by five feet by the end of the
century.
Gov. Jerry Brown signed SBX1 1, which
will provide $8 million in clean tech and
renewable energy job training. The funds will
come from the Renewable Resource Trust
Fund.
A 7.1 mw solar and energy efficiency
program at the San Jose East Side Union
High School District, completed in May with
the help of Chevron Corp., is the largest such
program for any U.S. school district.
The National Research Council released a
report criticizing the draft Bay Delta Conservation
Plan released in November 2010.
The Asian Development Bank announced
a $60 million investment in three venture
capital funds (Aloe Environment Fund III,
Keystone Ventures II, and VenturEast Life
Fund III) dedicated to climate-change-related
technologies in China and India.•••
DAVID ABEL
Publisher and Editor-in-Chief
JAMES BRASUELL
Editor
CONTRIBUTING EDITORS:
Eliot Abel, Bill Allen, Lee Kanon Alpert, Panama
Bartholomy, Jack Baylis, Robyn Beavers, Peter
Beattie, Forrest Beenum, Hope Boonshaft,
James Caldwell, K. Y. Cheng, Woody Clark,
Alan Chu, Jeremy Davies, Martha Davis,
Dan Dudek, Larry Eisenberg, John Emerson,
Allan Emkin, Cecilia Estolano, Hans-Joseph
Fell, Michael George, Paul Gipe, Madelyn
Glickfeld, Gail Goldberg, Linda Griego, Davis
Guggenheim, Jim Hankla, Lee Harrington, Bill
Hauck, Roy Hearrean, Robert Hertzberg, Kathy
Jones Irish, Bryan Jackson, Ambassador
Mickey Kantor, Richard Katz, Jeff Kightlinger,
Praful Kulkarni, Michelle Kydd-Lee, Joel
Kotkin, Ray Landy, Adi Liberman, Jacob Lipa,
Andy Lipkis, Tadashi Maeda, Felicia Marcus,
Daniel Mazmanian, Jan McFarland, Torbjorn
Millange, Norman Mineta, Rick Morrow,
Fred Ni, Mary Nichols, Fran Pavley, John A.
Pérez, Pedro Pizarro, Chantal Ramsay, John
Shegarian, Cobe Skye, Laura Spanjian, Tom
Soto, Marc Stuart, Terry Tamninen, Yaniv Tepper,
Fred Terrell, Mike Wallace, Lee Wallach, Martha
Welbourne, Jon White, Diane Wittenberg,
James Wunderman, Zhigou Yuan
INTERNS
Dave Sokolove
PRODUCTION ASSISTANT
Delyte Adams-Lawrence
Editor’s Note: Issues regarding climate change and technol-
ogy are frequently controversial. The opinions expressed
herein are solely those of the author and may differ from
the opinion of VerdeXchange, the publisher, and editors.
An article by a public official does not necessarily represent
the views of that person’s department or agency unless so
stated in the particular instance.
All rights reserved. Reproduction of this publication in
whole or in part is strictly forbidden without permission of
the publisher and author, and attribution. © VerdeXchange
Institute 2007.
VERDEXCHANGE NEWS is published quarterly by the
VerdeXchange Institute on recycled paper using
soy ink. VerdeXchange is a 501(c)3 project of Com-
munity Partners.
Periodical Postage Paid at Los Angeles, CA
ISSN 1082-1171/USPS 012-619
811 West Seventh Street, Suite 900
Los Angeles, CA 90017
Phone: 213 623-3801
www.verdeXchange.org
 verdexchange news SPRING 2011

LEGISLATIVE UPDATE
Ontario, Canada, whose clean energy economy continues to grow, creating 2,000 new jobs by adding more than 700 new
clean energy projects across the province, implemented a new set of fees for applications for feed-in tariff (FIT), microFIT,
and renewable power projects. In exchange for the new fees, Ontario’s Ministry of the Environment will streamline the
approvals process to make it easier for businesses, organizations, and individuals to develop renewable capacity. Ontario
did, however, put in place a moratorium on fees for off-shore wind projects.

In a speech delivered at Georgetown University at the end of March, President Obama set a goal to reduce oil imports
by one-third in the next decade. The multi-pronged approach laid out by the president to reach that goal includes finding
and producing more oil in the United States, boosting fuel efficiency, and turning to cleaner alternative fuels. President
Obama also called for an end to the country’s tendency of “shock and trance” over energy—shock when oil prices spike,
followed by trance when prices go down. In addition to talking about oil, the president stressed that nuclear energy will
remain an important source of electricity in the United States following the ongoing nuclear crisis in Japan.

Japan Prime Minister Naoto Kan announced a plan that requires solar panels on new buildings in Japan by 2030.

Congress has been struggling to pass energy legislation in response to rising gas prices. In mid-May The Senate defeated
a bill introduced by Senate Minority Leader Mitch McConell (R-Kentucky) that would have forced the Interior department
to conduct offshore lease sales in the Gulf of Mexico, Virginia, and Alaska that were postponed following last April’s
Gulf oil spill. Meanwhile, the U.S. EPA responded to pressure from Republicans and industry groups by announcing that
they will indefinitely delay new emissions standards for industrial borders and incinerators.

Legislators in Oregon introduced a bill that passed the state’s House Transportation and Economic Development Com-
mittee in April that would tax drivers of electrical and plug-in vehicles a tax of $0.0143 per mile starting in 2014.

California Governor Jerry Brown has signed legislation into law that will require utilities and other electricity providers
to generate 33 percent of their power from renewable sources starting in 2020, one of the most aggressive renewable
energy mandates in the world. U.S. Energy Secretary Steven Chu attended the bill signing and delivered a speech urging
other states to follow California’s lead by adopting mandates of their own. The bill was opposed by California’s largest
utility, Pacific Gas & Electric, on the grounds that mandating energy be from renewable sources will increase costs to
consumers. Earlier versions of the bill were vetoed by previous Gov. Arnold Schwarzenegger or failed to emerge from
committee.

California’s new cap-and-trade system has been delayed after San Francisco Superior Court Judge Ernest Goldsmith
ruled that the California Air Resources Board (CARB) must prepare a new environmental assessment that fully evalu-
ates alternatives to the plan, such as emission standards or a carbon tax. The ruling follows a similar ruling in March,
but the current ruling enjoins CARB from “engaging in cap and trade related activity.” The most recent lawsuit was filed
under the auspices of CEQA by the Association of Irritated Residents, an environmental group that alleges that CARB’s
cap-and-trade scheme could actually damage air quality in parts of the state.

The Delta Stewardship Council, created in 2009 by the governor and the legislature to consolidate policy toward the
water resources of the Sacramento Delta, has released the first of seven drafts of the Delta Plan, which sets policy for the
Delta beginning in January 2012 and lasting through the next century. The Delta Stewardship Commission is charged with
the twin goals of creating a more reliable water supply for California and protecting and restoring the Delta ecosystem.
Already, these goals appear to be in conflict with one another, as environmental groups accuse the council of violating
the Endangered Species Act by concluding in the draft report that “even with substantial ecosystem restoration efforts
some native species may not survive.” The report’s release coincided with Governor Brown proclaiming an end to the
state’s drought.

L.A. City Controller Wendy Greuel released an audit exposing weaknesses in the Department of Water and Power’s
efforts to move towards more renewable energy sources. Although the Department met this year’s goal of supplying 20
percent of its electricity from renewable sources, Greuel says the agency is without a financial plan for how to further
increase the percentage of power from renewable sources. L.A. DWP, like all California utilities, is mandated by the state
to draw one-third of it’s power from renewable sources by 2020. Greuel concludes that without adequate financial plan-
ning, the switchover to more renewable sources of power is likely to be costly for L.A. ratepayers. •••

3
verdexchange news SPRING 2011

GREEN HOUSING

VX2011 GREENBUILD PANEL: IN 2020, ALL DEVELOPERS

WILL BE BUILDING ‘NET ZERO’ HOMES
The following excerpts from a panel titled “Green Innovation for the Built Environment: Designing & Building
Net Zero Emission Buildings/Homes,” from VX 2011 in Los Angeles. The panel included Steve Glenn, founder
and CEO of LivingHomes; Tom DiPrima, executive VP, KB Home—Southern California Division; and Chip Fox,
Commercial New Construction Manager, SoCal Gas and SDG&E. Much of the discussion focused on the work
necessary to meet statewide net-zero targets for new home construction by 2020.

TOM DIPRIMA

Tom DiPrima (KB Homes): Let me tell you
a little bit about a project we recently did in
a partnership with the city of Lancaster, BYD,
and KB Home.We set out to build a production
home in a very affordable community price
range, starting in the high ones.We wanted to
do it in a quick manner, and we set out to do a
home with solar energy and something new
in battery storage.
This project is in Lancaster, California.The
community is called Alamosa. It’s actually a
community we took over that the previous
builder had walked away from. We worked
with the city—we’ve had a long-term relation-
ship in the Antelope Valley. The house has
many features—we worked with the design
board of the city of Lancaster to implement
one of the first WaterSense-labeled communi-
ties.This is an area in the desert, and a lot of
the homes are using about 1.2 acre-feet of
water. Through some of the changes we’ve
done with WaterSense appliances, with low-
use appliances, Energy Star appliances, such
as low-use dishwashers, and drought-tolerant
landscapes.The turf you see in the back is all
artificial turf.All this vegetation is either native
or very low-use. It’s point-drip irrigation, and
it has water-sensing devices on it, so it’s very
low water-use. Additionally, we installed four
kilowatts of solar on this home. There are a
lot of other energy features, but the one we
talked about the most is that this is the first
home in the United States to have a smog-eat-
ing rooftop.
The home was built in 36 calendar days.
That was from the day we started trenching
to the day we did the tour with the city.That
included all our decorating, furnishing, and
so forth. The home is an Energy Star home,
which is a standard in our company for all new
communities.The home has solar and features,
such as all the lights in the home are LED
lighting.The home has high-efficiency Energy
Star rated windows and heating ventilation
and air conditioning. It also has the ability to
go off-grid.
One of the things about solar, which is
not a brand-new technology, is that as it
generates that solar power, that power goes
into your inverter, and that power from the
inverter goes directly into the grid-side of the
“In this house, because of the battery-supply back up, which has the
ability to provide ten kilowatt-hours of power, and based on its low-use,
could run the home for a few hours.” -Tom DiPrima
panel on the electrical panel. In the event of
a power-outage, you can generate solar, but
you can’t use it.Your home would be dark in
the event of a power-outage. In this house,
because of the battery-supply back up,which
has the ability to provide ten kilowatt-hours
of power, and based on its low-use, could
run the home for a few hours. We picked
some select circuits, such as the refrigerator,
a light, and some monitoring areas, such as
the TV and radio, so that in the event of a
natural disaster you’d still have the ability to
monitor services...
...Additionally, the house has smog-eat-
ing tile. Basically, the way this tile works is
a chemical embedded that neutralizes the
nitrogen oxide in the air as it comes down in
contact with the roof. It also destroys algae.
As it rains, it washes all those, now clean, off
the roof. The roof has a LEED certification
for reflectiveness and it also does not hold
as much water—it doesn’t get as wet—so it
dries out in about half the time.
Just a little bit about the battery back-up
system: right now, currently, this home is in
Southern California Edison. We have a tiered
structure.The way our tiered structure is set
up is that once you reach peak rates overall in
your bill, then you pay the next rate of power.
But we do not have real time energy charges.
In other words, you pay the same amount of
price per watt at two in the afternoon as you
did at two in the morning. In the future, as
we go to a tiered structure, where you would
pay more at peak-use and less at off-use, you
can actually program this inverter to go on
at two o’clock, download power onto the
battery system, and then actually use it at two
in the afternoon or sell it back into the grid,
substantially reducing your energy use.When
we set out to do this home, we did not set
out for the home to be net-zero. Because the
home was so efficiently built, we ended up
being basically net-zero on electrical. We are
actually producing more electrical than the
home would use.
However, the home’s not a net-zero home.
And the reason it’s not net-zero is we do still
have gas for heating and gas for cooking,which
services a gas-electric furnace and we have gas
appliances, including a gas tankless water
heater. Now, we could have put an additional
1.5 kilowatts to offset gas use, which would
have made the house completely net-zero.We
chose not to because as it is, this home is not
going to have an electrical bill, and there isn’t
(continued on page 14)

4
 verdexchange news SPRING 2011

SHOW ME THE MONEY!

VX2011 PANEL: CLIMATE FINANCE—SHOW ME THE MONEY!

The following excerpts are from a panel titled Climate Finance Show Me the Money? from VX2011 Los
Angeles. This panel has been all four years of the conference, proving to be one of the most popular panels
among attendees of the conference, even if the mood has changed substantially in that time. At VX2011,
the panel had good news to report in terms of fund performance, even if clean tech investment was down
from prior years due to the effects of the global recession. The panel included moderator Allan Emkin, PCA
Managing Partner and panelists included; Brian Rice, CalSTRS investment officer; John Babcock, partner,
Rustic Canyon; and Jon Naimon, founder and managing partner, Light Green Advisors.
ALLAN EMKIN

Allan Emkin (PCA): Recognizing that
we’re capitalists and we’re fiduciaries, we
still believe that it’s a good idea to invest
in this space, whether it’s to save energy, to
clean the air, conserve water, or a variety of
other things.The three panelists represent
three different perspectives in the capital
markets.
Brian Rice (CalSTRS): We have about
$145 billion in assets under management
right now. We invested in equity, fixed
income, real estate, and private equity. We
also have an innovation and risk group,
portfolio has about 250 basis points. On quite material to the portfolio and some-
fixed income, we’ve just started to buy thing that we needed to learn more about
into green bonds, which is something and develop a program to manage that risk.
that’s starting to be developed right That’s one of the principal responsibilities
now. that I have there.
What they also do, which is interesting, We do several things.
in that asset class is a sustainability over- One of them is sup-
lay: they look at their existing portfolio, porting organizations
they’ve taken a composite index, looking that promote climate
at the Dow Jones and the MSCI sustain- or environmental risk
ability index, taking components of those, awareness. We invest in
the U.N. principles, the equator principals, the Carbon Disclosure
and coming up with this hybrid index. Project, we’re members
They lay it over their existing portfolio and signatories to that. BRIAN RICE

which test drives new investment ideas, and
we’re starting a new absolute return strat-
egy, which I believe will focus primarily on
infrastructure.We have a lot of policies and
principles in the investment department,
and one of those principles is that we try
to invest in companies and assets that have
a positive effect on the environment.
For a bit of background, in 2004, as part of
what was called the green wave, the board
of directors had CalSTRS make a commit-
ment to develop environmental-related
investments across the portfolio. Because
we’re here at the beginning of 2011, it
might be appropriate to tell you where
those investments stand in our portfolio.
In our equity group we have a sustainable
management program, which is about $600
million right now in value.
As Allan pointed out, we’re fiduciaries,
so this was started with the intent to
make money, so there was what they call a
double-bottom-line goal of environmental
and investment performance or out-perfor-
mance.They’re doing pretty well inception
(2006) to date. Our non-U.S. portfolio has
about 650 basis points of alpha, and our U.S.
to see the degree to which that portfolio The United Nations prin-
is sustainable. In real estate, the focus has ciples of responsible investment—we’re
been on building efficiency.We’re looking participants there.We’re active in the INCR.
to make our properties more efficient, Really we’re engaging other investors, gov-
and than that’s a criteria in investments ernment officials, regulatory bodies, and
going forward. Eighty-five percent of our our portfolio companies on what they are
“...our board felt the climate risk was something that could be quite
material to the portfolio, and something that we needed to learn more
about and develop a program to manage that risk. That’s one of the
principal responsibilities that I have there.” -Brian Rice, CalSTRS
separate account office buildings are doing to manage environmental risk and
now EnergyStar certified, and about 40 how they are disclosing that. We tend to
percent of them are LEED-certified.We’re focus on companies that have high carbon
working to improve those numbers. In risk. Water is an issue we’re looking at, and
private equity, we have a $600 million we’re also looking at what we call extracted
commitment to clean and green technol- risk, offshore oil drilling, oil sands, and coal
ogy. About 80 percent of that is buyout, ash disposal. We file shareholder proposals.
and 20 percent of that is venture. We’re one of the more active public pen-
At the same time, part of this com- sion funds in the United States. The half
mitment was not only for investment dozen proposals we’ve filed are all seeking
opportunities, but it was to take a look at improved disclosure on environmental risk
the risks. At the time, our board felt the
climate risk was something that could be (continued on page 12)

5
verdexchange news SPRING 2011
ONTARIO APPROVES 40 RENEWABLE
ENERGY PROJECTS WORTH 872 MW
Building on the success of the province’s Feed-
in Tariff, officials in Ontario, Canada, have
approved 40 new renewable energy projects,
expected to come on line within one to three years
and generate 872 mw of electricity for Ontario
consumers. 75 percent of the new capacity will be
generated by four massive wind power projects,
with the remainder coming from solar and hydro
installations. The Ontario Feed-in Tariff program
offers above market-rate prices for electricity
generated from renewable sources as long as the
equipment being used was manufactured in the
province. Total cost to Ontario consumers for the
new projects is expected to be less than $2 per
month.
GLOBAL CCS INSTITUTE REPORTS 21 NEW
CARBON CAPTURE AND STORAGE PROJECTS
LAUNCHED WORLDWIDE IN 2010
The Australian Global Carbon Capture and
Storage Institute has released a report showing
the total number of carbon and capture storage
(CCS) projects worldwide had increased to 234
by the end of 2010, an increase of 21 over the
previous year. Of the 77 large-scale projects, the
United States was the world leader with 39, the
E.U. second with 21, and China lagging with five,
respectively. CCS technologies are designed to
capture the carbon released by burning fossil fuels
at a power generating facility and store it in a way
that minimizes its environmental impact.
IPCC REPORT FINDS THAT RENEWABLE
ENERGY SOURCES, IF DEPLOYED RAPIDLY,
COULD STOP CLIMATE CHANGE
The Intergovernmental Panel on Climate Change,
a group of climate scientists formed by the
United Nations, has released a report stating that
if renewable energy sources were deployed as
quickly as possible, the worst effects of global
climate change could be prevented. The scientists
asserted that, if governments have the political will
to provide investment and incentives for renewable
energy, carbon in the world’s atmosphere could
be kept below the critical mark of 450 parts per
million, the threshold above which climate change
will become devastating and unstoppable because
of feedback cycles. Rajendra Pachauri, the IPCC’s
chairman, estimated that the investment needed to
achieve this would represent about 1 percent of
global GDP annually.
6
GREEN NOTES
E.U. NATIONS NEARLY DOUBLE RENEW-
ABLE GENERATING CAPACITY IN 10 YEARS
The percentage of power coming from
renewable sources across the European Union
has gone from 5.4 percent in 1999 to 9 percent
in 2009, according to a new study by Eurostat.
The E.U. has set a goal to produce 20 percent
of its electrical power from renewable sources
by 2020. The nation that produces the highest
percentage of its power from renewables was
Sweden, with 34 percent, while Denmark led
the E.U. by increasing its percentage of power
from renewable sources from 8 percent to 17
percent. Regional powerhouse Germany went
from 2 percent to 8 percent produced from
renewables, while the U.K. lagged behind,
going from 0.9 percent to 3 percent in the
same period.
FACEBOOK SHARES GREEN INNOVATIONS
WITH COMPETITORS
Facebook has publicly shared technical data for
the company’s new state-of-the-art data center
in Oregon in an effort to convince competitors
to adopt some of its power-saving innovations.
The company’s new Prineville, Oregon, facility
uses 38 percent less electricity than traditional
data centers. Facebook’s decision is in contrast
with those of rival tech firms, such as Google
and Twitter, who have kept technical data for
their own data centers confidential. Despite the
Prineville facility’s efficiency, environmental
group Greenpeace criticized Facebook for
purchasing the electricity to run its servers
from power companies that generate using coal
and nuclear power plants.
GOOGLE INVESTS $100 MILLION IN
OREGON MEGA-WIND FARM PROJECT
Following up on news that Google invested
$168 million in a project to build a solar
thermal power plant in California, Google
is investing another $100 million in the
Shepherd’s Flat Wind Farm project in Oregon.
The Shepherd’s Flat project will cost $2.3
billion to build, includes 338 wind turbines
deployed over 30 miles, and will have a
generating capacity of about 60 percent of
an average-sized U.S. coal fired power plant.
Other major investors in the project, which
is expected to become operational next year,
include Citi Bank, Bank of Tokyo-Mitsubishi
UFJ, and RBS Securities.
BERKELEY SKEPTIC’S STUDY ADDS MORE
EVIDENCE FOR GLOBAL WARMING
A high-profile team of scientists led by prominent
global warming critic Dr. Richard Mulller
released preliminary findings agreeing with
previous investigations that found Earth’s
temperature to have increased over the last
century. The Berkeley team’s findings closely
matched those of the previous studies, done in
the U.S. by NOAA and NASA and in the U.K. by
the Met Office, which found that Earth’s average
temperature has risen by about 1.4 degrees
Fahrenheit over the last 100 years. Muller
announced his team’s findings at a congressional
hearing of the House Science and Technology
committee, whose GOP leaders have previously
expressed skepticism about climate change.
GE ENTERS SOLAR PANEL MANUFACTURING
BUSINESS
In a move that could upend the balance of power in
the American solar energy industry, one of the nation’s
largest companies, General Electric, has announced
plans to enter the solar panel manufacturing business
and build a factory that would start producing solar
panels by 2013. The new factory, whose location has
yet to be determined, will create 1,000 permanent
jobs and manufacture thin-film photovoltaics, which
is less efficient than traditional solar panels but
also significantly cheaper. GE began the process
of entering the solar market with its purchase of
PrimeStar Solar, a Colorado company that specializes
in thin-film photovoltaic panels.
U.S. EPA RAISES AMOUNTS OF RENEWABLE
FUELS IN GASOLINE SUPPLY
The U.S. Environmental Protection Agency
has raised the amount of renewable sources in
transportation fuels from 12.95 billion gallons to
13.95 billion, though the percentage of renewable
fuels in domestic gas and diesel supplies will dip
lower than it is now. Congress requires the EPA
to increase the quantity of renewable fuels each
year, in the hopes of reaching 36 billion gallons of
renewable fuel in the nation’s supply by 2022.
U.S. WIND POWER GROWTH SLOWED IN
2010
Facing low energy prices and uncertainty about the
continuation of federal tax credits, the wind power
industry posted a bare 15 percent growth rate for
2010, much slower than the average 39 percent
growth the industry experienced in the preceding five

years. This setback comes on the heels of China’s
overtaking of the United States in the volume of
new wind power facilities and manufacture of wind
turbines for the first time in 2009. The U.S. has about
40,181 mw of wind generating capacity, enough to
power ten million homes, and the industry employs
over 20,000 people in 42 states.
SMART METERS PREDICTED TO SKYROCKET
According to a report from Pike Research, over 90
utilities in the United States have plans to install
nearly 60 million smart meters. The increase
comes from $3.4 billion in smart grid investment
grants, which were intended to fund 18 million
smart meters in the next three years. Globally,
Pike predicts 250 meters will be installed by 2015,
with Canada, Europe, and China accounting for the
majority of new meters.
NRG ENERGY INAUGURATES FIRST PRIVATE
ELECTRIC VEHICLE CHARGING STATION
NRG Energy officials formally opened for
business as the first commercial electric vehicle
charging station in the United States, with the
“Freedom Station” as the company calls it, in
Dallas, Texas. NRG plans to open a total of 70
stations in the Dallas/Fort Worth area this year
as part of its “eVgo” electric vehicle charging
network, followed by a further 50 stations in
Houston and along the I-45 corridor next year.
NRG partnered with Nissan Automotive to make
the eVgo network the official power station of
the new Nissan LEAF electric vehicle, which hit
the U.S. market last December.
CODA AUTOMOTIVE TO OPEN FIRST RETAIL
STORE AT WESTFIELD CENTURY CITY MALL
Battery-electric automobile manufacturer CODA
will open its first retail store in the Westfield Century
City mall in Century City this summer. The store,
which will aesthetically resemble an Apple store, will
provide a comprehensive educational experience for
customers about the CODA electric vehicle and will
include a full-scale replica of the CODA sedan’s
battery and electric propulsion system. Customers
will be able to test-drive a CODA vehicle at a test
drive center located in the parking garage directly
below the store.
ELECTRIC VEHICLE MAKER FISKER RAISES
OVER $1 BILLION BEFORE SELLING A
SINGLE CAR.
Electric vehicle manufacturing start-up Fisker
GREEN NOTES
Automotive has announced that it has raised
over $1 billion in capital, all without having an
IPO or selling a single car. Fisker’s first vehicle
was originally scheduled to go on sale in the fall
of 2009, but is now expected in showrooms this
summer. Fisker has deep-pocked backing in the
form of the major venture capital firm Kleiner
Perkins, and electric vehicle battery maker
A123 systems. The company also qualified for
one of the Department of Energy’s green car
manufacturing loans, totaling $528.7 million.
INVESTMENT IN CLEAN ENERGY DOWN 34
PERCENT IN Q1 OF 2011
Investment from all sources in the clean and
alternative energy sector worldwide fell from
$47.1 billion in the fourth quarter of 2010 to
$31.1 billion in the first quarter of 2011, after
significant reductions in subsidies in across
Europe and record-low prices for natural gas in
the United States. The first quarter 2011 figure is
the lowest since the first quarter of 2009. The U.S.
wind power and European solar power markets
took the biggest hits, while wind power in China
and Brazil both posted solid growth.
DOE AWARDS SOLAR TRUST OF AMERICA
$2.1 BILLION LOAN GUARANTEE TO BUILD
BLYTHE SOLAR POWER PROJECT
As part of a federal Department of Energy loan
guarantee program, solar-thermal power plant
developer Solar Trust of America has been awarded
$2.1 billion in loan guarantees to built its Blythe
Solar Power Project, a proposed solar-thermal
power plant in Riverside County. The Blythe
Solar Power Project will generate 484 megawatts
of power and create more than 1,000 jobs. Solar
Trust of America has already inked a contract to
sell all of the power generated at Blythe to Southern
California Edison. Construction has begun and is
expected to take six years, but the first phase of
the project is expected to come on-line and begin
generating power in 2013.
CONSTRUCTION TO BEGIN ON FIRST US
OFFSHORE WIND FARM THIS FALL
Interior Secretary Ken Salazar has given the
final federal approval for CapeWind, the nation’s
first offshore wind turbine power plant, to be
built in federal waters 4.5 miles off the coast of
Massachusetts. Initially proposed by a Boston
developer in 2001, the project ground to halt
because of lawsuits from coastal residents,
verdexchange news SPRING 2011
but has revived with support from the Obama
administration and Massachusetts Governor Deval
Patrick. When complete, CapeWind will include 130
440-foot turbines located in a 25-square-mile area
of Nantucket Sound, between the Massachusetts
mainland and the islands of Martha’s Vineyard and
Nantucket. The plant is expected to generate enough
electricity to power 200,000 homes.
CONGRESSIONAL BUDGET DEAL INCLUDES
$130 MILLION FOR RENEWABLE ENERGY
AND BATTERY RESEARCH
Energy Secretary Steven Chu announced that the
budget compromise agreed to by congressional
Democrats and Republicans includes $130 million
in funding for the Advanced Research Projects
Agency-Energy, or ARPA-E, program. ARPA-
E funds research that is high-risk enough to
prohibit private investment, but has the potential
to revolutionize the alternative and low-carbon
energy sector. The $130 million will be used to fund
research into biofuels, energy storage, solar power,
and potential alternatives to rare earth materials.
KB HOMES PLANS HUNDREDS OF SOLAR-
POWERED HOMES
Los Angeles builder KB Homes announced plans to
build more than 350 new homes featuring solar power
in exurban Santa Clarita and Lancaster. Each home
will come with a solar power unit capable of reducing
the house’s electricity bill by 30 percent. The projects,
called Echo Point and Echo Ridge, represent one of
the largest single-family home developments in L.A.
County since the sub-prime mortgage crisis, and one
of the largest solar-powered home developments in
the country to date. Each home built is expected to
create seven construction jobs.
FUNDING RESTORED FOR FEDERAL LOAN
GUARANTEES FOR SOLAR POWER
Funding for a U.S. Department of Energy loan
guarantee program that has funneled more than
$21 billion into the U.S. renewable energy has
been secured for FY11, after a fight over the
issue between congressional Democrats and
Republicans. The Republican’s original budget
plan called for killing the program to help
bridge the federal budget deficit. Funding for
the program beyond October of this year remains
uncertain, but Senate Majority Leader Harry Reid
(D-Nevada) vowed to fight to keep the program,
which has helped the industry build 22 generating
projects in 14 states. •••
7
verdexchange news SPRING 2011

ONE WATER

VX2011 PANEL: ‘ONE WATER’ CONCEPT REFLECTS CHANGE OF CULTURE

IN LOS ANGELES AND CALIFORNIA
The following excerpts are from a panel titled “Commonality of Global Cities: ‘One Water’” from VX2011 Los Ange-
les. The panel highlighted initiatives by cities, especially Los Angeles, to integrate conservation technologies with
greenhouse gas emission reduction—a sector that has experienced drastic shifts in culture and technology in recent
years. The panel, which summed up the new practices of water management with the term “One Water,” included
moderator Michael Patrick George, managing director and manager of Integrated Water Industry Services for Wed-
bush Securities, and panelists Adel H. Hagekhalil, assistant director of the L.A. City Bureau of Sanitation, and Noah
MICHAEL GEORGE Garrison, program director of the Natural Resources Defense Council.
Michael George (Wedbush Securities): ...We all know water is life. Without water, guage.We’re moving in that direction.
We’re talking about “one water” this morn- you cannot survive. I mean, we have all the A dilemma we have in Los Angeles is 85
ing—how we recognize that water is a water we have.We don’t have new water; we percent of the water comes from some-
changing commodity and a changing value have to manage that water. For any city to sur- where else. There are so many challenges
for all of our society. I remember about ten vive and grow, especially these days, we need for us on that supply of water. In the Owens
or 15 years ago, if you talked to a wastewa- to manage the water efficiently. Los Angeles as Valley, the amount of
ter engineer, that engineer tended to think a city became what it is today because of water. water we can bring
of the discharge permit as probably the The city built around the L.A. River. Mulhol- through the L.A. Aque-
most valuable thing the agency had (i.e., land brought water in, and that’s what made duct is diminishing. We
the ability to discharge what we used to the city that it is today, the great city. For us to have to restore the envi-
call waste water). Now, as we move to a maintain the greatness of Los Angeles, as other ronment of the Owens
concept of one water, we recognize that cities in the world, we need now to protect Valley. The Delta has so
there is no such thing as waste water—that and harness that water and to become more many challenges—there
was an ephemeral and inappropriate way sustainable. When he introduced our water are so many strains on
to think about water that had been used supply action plan, the mayor said,“Our future the levees, on the use, ADEL HAGEKHALIL
once before. depends on our willingness to adopt an ethical etc.And we don’t know really what is going
Several years ago, I went on a water tour sustainability. If we do not commit ourselves to happen with the Colorado River.We need
by the Water Education Foundation, four to conserving and recycling water, we will tap to change the balance. Eighty-five percent
days on a bus through Northern Califor- ourselves out.”This really speaks volumes.The comes from somewhere else.
nia. I learned on that trip that if you want city has shifted. We are now looking at water Every time it rains one inch of rain in Los
really fresh water you better live north of as essential for the vitality of this city... Angeles, about four billion gallons of water
Redding, because water is used over and ...I am going to acknowledge my partners will go down to the ocean—every time it
over again as it gets to Southern California. at the Department of Water and Power, with rains.That’s a huge amount of water.That’s
That’s what the concept of one water is all
about.We’re very lucky today to have a very “I am going to acknowledge my partners at the Department of Water and
distinguished panel to describe the next Power, with whom we came together ten years ago to develop the Integrated
step in managing our water supply...
Resources Plan. That’s the first time we came together to talk about water,
Adel Hagekhalil (City of Los Angeles): not wastewater, not stormwater, not potable water, and not recycled water.
I am a reformed engineer. I have seen the
light, and we don’t call wastewater “waste- We talked about water.” -Adel Hagekhalil
water.” It’s “wasted water,” if not properly
managed... whom we came together ten years ago to enough water for about 100,000 or 200,000
Sanitation, where I work, is the city’s develop the Integrated Resources Plan.That’s households.The water is here.The question
environmental department. We are going the first time we came together to talk about is how we harness that water.
through an evolution, so hopefully in a few water, not wastewater, not stormwater, not There are many challenges facing all of us:
years, we’ll be called the Department of potable water, and not recycled water. We climate change; stormwater pollution, the
the Environment.This is really what we’re talked about water. Ten years ago we were pollution of our beaches and waterways;
heading into, because our mission is not talking about capturing and harnessing storm growth—this city is going to grow over
just sanitation, it’s managing and protecting water, everybody looked at us like, what are
the environment and resources... you guys doing? Today, it’s a common lan- (continued on page 9)

8

HAGEKHALIL: WE CALL IT ‘WASTED WATER’, NOT ‘WASTEWATER’
(continued from page 8)
the next 30 years by about half a million
people—aging infrastructure, whether it’s
water or wastewater; and breakdowns in
systems. We need to address that, and we
can do it in a smart way. Storm drains do not
have to be built if you use green technology
where you capture runoff and let it infiltrate
instead of having it become a problem, a
flooding problem and a pollution problem.
We have limited water supplies. Eighty-five
percent comes from somewhere else. The
state regional board is regulating us to make
sure that we’re improving water quality at
our beaches, our waterways, and now in
our groundwater. There are opportunities
to do that in an integrated way, where we
maintain water supply, greening our com-
munities, improving water quality and storm
water quality, and making our beaches and
“Every time it rains one inch of rain in Los Angeles, about four billion
gallons of water will go down to the ocean—every time it rains. That’s a
huge amount of water. That’s enough water for about 100,000 or 200,000
households.” -Adel Hagekhalil
waterways safe for our children. There is a
problem with a lack of funding and reces-
sion. We don’t have enough money to do
all of this. But if somehow we can leverage
resources and bring everything together, we
can do things a better way.
I’ll give you a couple of examples. Waste
water: We have about 300 million gallons a
day that goes into the ocean. That’s wasted
water that we have to harness and recycle
and use, and find sources for it, and we are
heading in that direction. Stormwater: 3
billion gallons a day, 100 million gallons a
day when it’s dry. Groundwater: Billions of
gallons in groundwater that is not being used
because it’s contaminated. We need to find
out how we can harness that, how we can
improve the quality through groundwater
infiltration, freshwater to dilute the pollu-
tion, or to bring it up and clean it.That’s the
integration that we talked about—bringing
everybody together, breaking the silos.
That’s what we’ve done in this city: we
have broken the silos. Now we are talking
together, now we are working together.The
Department of Water and Power is talking
about stormwater capture and infiltration
as part of their portfolio...We need partner-
ships.
The Department of Water and Power,
working with us and our partners in the dif-
ferent agencies, along with the stakeholders,
is setting goals for the next 35 years. We’re
going to increase water conservation 64,000
acre-feet by 2035.The city has accomplished
already 100,000 acre-feet in water conserva-
tion over the last 25 years. Most of it was
done inside homes. Now we have to shift
to outside the house in the irrigation area,
where we can capture stormwater and use
native planting, etc.The population over the
last 25 years in Los Angeles grew by 1.5 mil-
lion people. Our water use today is the same
as it was 25 years ago...So, 100,000 acre-feet
per year has been saved by the great work
for the Department of Water and Power, but
more needs to be done.
“There is a problem with a lack of funding and recession. We don’t have
enough money to do all of this. But if somehow we can leverage resources
and bring everything together, we can do things a better way.”
-Adel Hagekhalil
Water recycling: We are improving our
water quality by improving our water treat-
ment plants, but also we are working with
the Department of Water and Power to
implement great things such as advanced
treatment. In our treatment plant in the Val-
ley, where we can take the water from that
treatment plant all the way up to spreading
grounds and let it enter into the ground and
replenish the groundwater. The pipeline is
there: let’s improve water quality, and let’s
get the acceptance by the public. That’s
verdexchange news SPRING 2011
moving forward right now. We’re working
toward doing at least 60,000 acre-feet by
2035, if not more.
We’re building a network of pipelines
where it’s cost effective. In some places in
this city, the distance between the treatment
plant source of water and the user is far, so
we need to figure out the most cost-effec-
tive way to do it. In the areas where the
distance is far, without thinking outside the
box, can we harness the wasted water, from
the sewer, bring it up and build a decentral-
ized treatment plant just for that use? We’re
looking at Exposition Park by USC for the
potential to supply that area with recycled
water, without having to spend the money to
bring the water all the way from Tillman or
another location. There are always creative
ideas. Maybe stormwater could be anther
way to look at it. Maybe we can harness
water from the L.A. River, bring it up, treat
it, and let it be used as a source of water
for irrigation, industrial use, etc. There are
always opportunities. Groundwater clean
up has huge potential, and we can really
harness that.
Stormwater and rainwater harvesting are
dear to my heart.There is a number of 10,000
acre-feet per year that is being looked at by
the Department of Water and Power, but
we’re doing a lot more. I don’t know what
the number is, but it’s a huge amount of
water, through green streets though onsite
capture and filtration, through the Low-
Impact Development ordinance, etc. I’m
proud to say that on December 17, 2010, the
Los Angeles City Council approved the Low-
Impact Development (LID) ordinance.
It was unanimously approved and will
require developments and redevelopment
in the city of Los Angeles to capture the first
(continued on page 10)
9
verdexchange news SPRING 2011
ONE WATER: L.A. IMPORTS 85 PERCENT OF ITS WATER SUPPLY
(continued from page 9)
three-quarter inch of rain, infiltrate that water,
and use it onsite. That marks a huge shift.
That’s the best thing for us—to start doing
it as part of our growth of the city and the
development of the city.
Now let’s talk about the energy benefits of
LID and water supply. City staff in watershed
protection are developing total maximum
day loads (TMDLs), which are pollution
prevention plans to improve water quality
in waterways, whether it’s the L.A. River,
Barnard Creek, or the Santa Monica Bay.
But we’re developing plans based on a
watershed. Part of these plans is to harvest
rainwater in development, to capture water
and let it infiltrate, as part of plans...
We’re doing some projects already. There
is a Lowes in the Valley that is being built,
or actually was built, and its capturing in a
trough on site, and its infiltrating into the
ground. In South L.A., there is a huge story:
there is a nine-acre old bus depot being
converted from a black-top, polluted depot
into a stormwater wetland park, where
we’re capturing 40 acres of runoff from the
area, going into the wetlands for treatment
and reuse, and creating an oasis, an oasis for
the community for an area that is deprived
of parks and deprived of open space. The
project is under construction right now, it’s
on 54th and Avalon. Hopefully by the end of
this year it will be a great place to go look
at.That’s an example of stormwater capture,
water conservation, and reuse, but also green-
ing and bringing in something that improves
the quality of life in the community.
About two weeks ago, we did a ground-
breaking on a green ally in North Hollywood,
where we’ve taken about five blocks and
converted a black top ally into an ally taking
stormwater and runoff and infiltrating into
the ground.All the properties along that area
will be self-sustained because of that water
that’s going into the ground.
In September, we did the construction of
Riverdale Street, which is another example of
taking runoff and letting it go into the ground.
It’s a green street. The L.A. Zoo—many of
these projects that are actually funded by
Proposition O, which was passed by our
residents in 2004 for $500 million. The
10
approval was 76 percent...The L.A. Zoo is
another project where we are capturing
stormwater. Elmer Street is another project.
For Westside Park, we’re taking a Water and
power conduit, or easement, and convert-
ing that into a community park, where
we’re taking runoff, putting into cisterns
and using it for irrigation in that park.
That’s an example of what can be done
to an area that was basically sitting idle,
collecting waste, and becoming a blight
to the community.
Rainwater barrels: we worked with the
Santa Monica Bay Restoration Commission
to implement a pilot program to retrofit
homes with rain barrels and downspouts
that are directed to rain gardens, etc. We
“[The Low-Impact Development ordinance] was unanimously approved
and will require developments and redevelopment in the city of Los
Angeles to capture the first three-quarter inch of rain, infiltrate that
water, and use it onsite. That marks a huge shift.” -Adel Hagekhalil
were able to do that for about 1,000 prop-
erties. The key thing about it was people
were proud of what they’re doing.We had
people asking for the signs that said,“We
proudly harvest rainwater.” We ran out
of signs and people were calling to ask,
“Where is my sign? I want to put it in front
of my house to show my neighbors that
I am harvesting rainwater.” This is a great
example of what is possible. The future
for us is to make sure that every home in
Los Angeles has a rain barrel. That’s really
what we’re looking for. That’s the future;
it’s not too far away, and we can do it in a
way that’s effective. Hopefully we can get
some sponsors from people like Disney,
Coca-Cola, and others that are willing to
put their name on a rain barrel and bring
it to the homeowners to do the right thing.
We’re thinking outside the box to make
it happen.
Next to Elmer Street is the Strathern
Wetland Park in Sun Valley.That area used
to flood all the time, and now we’re looking
at this potential gravel pit that we bought
through Proposition O, where we’re going to
take a thousand acres of runoff into this wet-
land park and convert it into a beautiful place
that is going to treat the water and infiltrate
the water underground. It’s probably going
to give you about 1,000 acre-feet of water or
more. That’s going to be beautiful work, and
we’re going to look at it over the next 2-3 years
it will be in place.
DWP is looking at the future, and we’re
looking at changing that imbalance. We’re
going to change the percentage of water
that’s being imported, from 85 percent to
somewhere around 60-65 percent. Hopefully
we can do even more by 2035.We’re going to
challenge ourselves to do more, but we need
partnerships, we need support, and we need
help.We need to look for new technologies to
treat water.We need to address water quality
issues and find ways that we can comply with
water quality in an efficient way. We need
partnerships with industry, scientists, and
regulators to help us find new ways we can
maximize the use of our water.The key thing is
collaboration.We have worked together in the
city of Los Angeles, but we need to continue
that partnership. We need to work with the
businesses, with the industrial communities,
and with the development community. For the
LID ordinance, the biggest challenge we had
is working with the development community
and the building industry, to show them that
there is a benefit in implementing low impact
development. There’s a benefit for the final
user of the building. I’m glad they finally came
around and supported the ordinance. That’s
going to help us move forward.
We all can see the challenges are huge.
But I’m glad to see the shift that we’ve made
over the last ten years. Especially over the
(continued on page 11)
 verdexchange news SPRING 2011

GARRISON: CALIFORNIA HAS ALL THE WATER IT NEEDS...IF MANAGED PROPERLY

(continued from page 10)

last two to three years, we have shifted and I want to look at how Southern Califor- are decreasing, is that we take water from
we are looking for new ways to manage our nia gets its water...groundwater is a large the most energy-intensive sources that we
water, to improve water quality, to enhance portion of the L.A. basin, but the dominant can. Reuse supplies take anywhere from 500
our water supply, and, most importantly, to water supply source in Southern California to 1,000 kilowatt hours
make this city, this country, and this world a is imported water.As Adel pointed out, we per acre-foot of water
more sustainable place for our children and import something like 2 million acre-feet to supply. Groundwater
grandchildren... per year in Southern California.That’s more pumping takes 500-1,000
than 650 billion gallons of water imported hours-per-acre-foot to sup-
Noah Garrison (NRDC): California has the from outside sources, either from Northern ply. Even if you’re dealing
water and the water resources we need to California or from the Colorado River. We with brackish water—you
meet all of our supply needs, if we manage do it at tremendous energy expense. One have to desalinate brack-
it wisely. The unfortunate thing is, we have thing I want to note from Adel’s speech is ish water through reverse
not been managing it wisely. As a result, we that when it rains in Los Angeles in a one- osmosis—you’re still only NOAH GARRISON
are susceptible to environmental conditions, inch rainstorm, four billion gallons of water looking at about 1,500
infrastructure failures, and other problems that run out into the ocean. If you expand kilowatts per acre-foot to supply that water.
that can cause problems for water supply. that to cover all of Southern California, it’s Unfortunately, about half of Southern Califor-
I am going to focus on California, and well into the tens of billions of gallons of nia’s water supply comes imported through
specifically Southern the State Water Project
California, for this pre- or the Colorado River
sentation, but this is aqueduct. We’re start-
a national problem. ing to look at 2,500,
We have issues in the 3,200, or even, at the
Colorado River Com- end of the State Water
pact states, where we Project, over 5,000
don’t have the supply kilowatt-hours-per-
in the Colorado River acre-foot to supply
and the reservoirs on the water. This has a
the Colorado River tremendous energy
that we would hope impact. So, the more
or expect to have. we import water, the
Lake Meade and Lake more energy we emit
Powell were below to do it, and the more
50 percent of their we cause that source
capacity within the to decrease.
last couple of years. The way we use
We see that the Sierra land also wastes
Nevada snow pack water—not only in
is shrinking and is how we supply the
expected by the end water but also in how
of the century to reduce by as much as 80 water that flood straight into the ocean, we develop.Land development and popula-
percent.That’s the major surface water sup- wasted. If we could capture even part of tion, or the amount of land developed per
ply source for all of California.Atlanta came that, we’d do a tremendous amount to off- population, has increased tremendously over
within three months of running out of water set the need to import water or the water the last 40 to 50 years. This has a number of
entirely two years ago and is still in roughly that we do import. It rains something like impacts.We use more water for irrigation, for
drought conditions, by no means out of the 20-30 days in Southern California every uses on property, but we also create a lot more
woods. These are problems that are occur- year. That’s a lot of water that we could impervious and paved surfaces.
ring nationally, particularly in the Southwest, be capturing and using toward our water This is where stormwater enters the equa-
but all across the country: we see drought supply goals. tion. Because we have all this impervious
conditions or infrastructure problems pop One of the other problems that is pre- surface, when it rains, we generate far more
up, and we don’t necessarily have the capac- sented by the way that we get water, aside
ity to meet our water supply. from the problem that our supply sources (continued on page 20)

11
verdexchange news SPRING 2011
SHOW ME THE MONEY: BUILDING EFFICIENCY TECH HAS STRONG INVESTMENT RETURNS
(continued from page 5)
or asking for the company to prepare a
sustainability report.
Lastly, it’s important that we have a
green initiative task force at CalSTRS,
which was started in 2007. Each asset class
is responsible for compiling and reporting
on what their unit is doing to take advan-
tage of investment opportunities or to try
to manage risk. We report annually to our
board, and that is available on our website
as are all of our investment policies and
principals. www.calstrs.com.
John Babcock (Rustic Canyon): The
scale of what I do is sort of one comma
to the right of Brian’s, with $145 billion
under management. My name is John
Babcock, I’m a partner at the firm called
Rustic Canyon Partners. We’re an early
stage venture capital firm. Our typical first
investment in companies is $1 million to
perhaps $10 million.We have $600 million
“[Clean tech] is not an area we went into because we had limited partners
saying they wanted it as part of a corporate initiative. We went after it
because we thought it was an area to develop out-sized returns.”
-John Babcock
under management today, investing out of
Rustic Canyon III, which we raised $210
million for in 2008. It is a slightly smaller
scale.
The investments out of Rustic Canyon
III are actually in two areas, digital media
(i.e., Internet) and clean tech, so we’re not
an exclusively clean-tech focused firm, but
we have a team, including myself who are
quite focused on it.To set a little context of,
I’m sure you’ve got from this conference,
but there is an incredible breadth of what
fits as a clean tech investment area. It is
not an area we went into because we had
limited partners saying they wanted it as
part of a corporate initiative.We went after
it because we thought it was an area to
develop out-sized returns. That’s proven
to be the case.
For example, a company called Serious
Materials. We did the first investment in
them, and made the investment in 2007 of
12
$5 million.They make green building materi-
als. It’s a fair question to ask,“What’s a green
building material?” It’s either something that
reduces energy consumption within the built
environment or which has reduced embodied
energy, that is, the energy that was necessary
to produce it is lower. The wedge of energy
consumption for our buildings in the United
States is not a trivial number.
The bigger area is energy consumption
within the built environment, trying to
reduce that. The easiest example for that is
the Empire State Building, which recently
retrofitted all 6,514 of the windows with
windows from Serious Materials, with a sub-
stantial impact on the building heating and
cooling, which for the Empire State Building
is not a small number. Another company is
something called Transonic Combustion,
which was a very early stage company that
makes injection systems for higher-efficiency
internal combustion engines. Our initial
investment was $1.5 million. We’ve looked
at a number of electric companies, and the
most aggressive forecast for electric vehicles
for 2020 is that they are 20 percent of the
market in 2020, with most people putting
that number lower.We continue to think that
internal combustion and liquid fuel is the only
way to transport a lot of power, and still one
we’re going to use. They are in testing right
now of two of the five largest OEM’s in the
world. I think it’s notable for this discussion,
but it’s not in a production vehicle.That was
an investment made in 2007. One other one,
Fulcrum Bioenergy, which is a company that
makes ethanol out of municipal solid waste.
They have off-take agreements from waste
haulers for 20, 25, or 30 years, at no cost,
for about 7 million tons of municipal solid
waste. The cost of their feed stock is the
same as solar, but it produces ethanol.That’s
an interesting technology, and it was recently
selected for a DOE loan guarantee.The impact
the government has had there has been
meaningful to a lot of companies and
certainly for Fulcrum.
Allan Emkin: Do you have an estimated
payback on the win-
dows for when break
even might be? Is it
five, 10, 20 years to
break even?
John Babcock: I
don’t know that the
Empire State Build-
ing’s owner published JOHN BABCOCK
it. I believe their model
forecast was six years.
Jon Naiman (Light Green Advisors):
Light Green Advisors if one of CalSTRS’s
managers in the sustainable manager pro-
gram. We have a relative value approach
to looking at environmental value within
public markets. We seek to invest in
companies that have green advantages
throughout the economy, not just in the
renewable space. One of the things that
we have in common with Serious Materi-
als is that we also see energy efficiency as
something that operates across every sin-
gle industry. Every single business in the
country uses energy.Very few companies
focus on it systematically, and it is a source
of value that typically provides faster
paybacks than renewables. We invest in
large cap companies that have the scale to
deploy a variety of products and services
with environmental advantages.
Some of our portfolio holdings are
ones that you may not think of as pure
green companies, but that’s why were a
light green advisor. One of them is Gen-
eral Electric. They produce some of the
highest efficiency turbines in the world.
Another is United Technologies, which
has pioneered several technologies lead-
ing to zero or net-energy-positive build-
ings without the use of solar. For instance,
they have elevators that generate power
while braking as they go down.We essen-
(continued on page 13)

SHOW ME THE MONEY: IN ‘09 CLEAN TECH INVESTMENT CONTRACTED, IN 2011 IT’S ATTRACTIVE
(continued from page 12)
tially believe that we can add value over harder and harder to get because the more
time by finding firms that have competitive it gets efficient, other people are going to
advantage over their peers. Over the last 11 start looking at some of the factors...
years, we’ve out-preformed our benchmark, Where do you see the capital coming
which is the S&P 500, by over 13 percent, from and the speed of that capital increas-
so we’re pretty confident. The last few ing, decreasing or staying the same?
years we’ve done quite Brian Rice: Well, probably the most
well. Looking forward, John Babcock: Those statistics have been significant is the oil spill in the Gulf of
there are a lot of macro published, to some extent, and it’s decreas-
drivers that will make ing meaningfully. To use Brian as a scale of
energy efficiency and the amount of capital, the entire venture
resource efficiency even capital industry, for most of its history,
more important. The ticked along at about $15 billion per year.
demographic changes in In 1999 it was about $50 billion, 2000 was
Asia and the developing $110 billion. It has come back down and
JON NAIMON
world, particularly the started to stabilize at $24 billion. I think
rising income, is leav- this year was $16 billion.And so, clean tech
ing pressure on commodity prices, which was off from 2009 to 2010 by 52 percent.
means that if you have a 1 or 2 percent The market is contracting.As someone who
advantage over a competitor in terms of raised a fund in ‘08, I find that reasonably
the efficiency with which your building or attractive. If you’re familiar with the venture
process component uses energy or water, business, typically we raise funds every
which is also a resource under stress, that five years, which is different than what the
“Over the last 11 years, we’ve out-preformed our benchmark, which is the
S&P 500, by over 13 percent, so we’re pretty confident. The last few years
we’ve done quite well.” -John Naimon
becomes much more important as the other John does—when he sells shares in a
price of oil goes from $90 a barrel toward company ,he takes the capital and recycles
$150.We see that dynamic operating for the it.We invest each dollar once, and every five
foreseeable, and the relative value approach years we run out and need to raise another
to adding value in the public equity space fund. Capital is definitely contracting and is
has legs as a result. starting to have an attractive effect for new
investors on pricing. But the impact of the
Allan Emkin: Just to put some of John’s recession was felt, for sure.
comments in context, in the institutional
investment world, a lot of the people mea- Allan Emkin: I’m going to rephrase that in
sure themselves by what’s called a universe. my language. That means the people who
They compare themselves with their peers. are coming up with these new companies
Beating your benchmark, in this case the are having to give more to investors to
broad U.S. market as measured by the S&P attract the capital, which will make it that
500, which is pretty much what John has much more interesting for the Cal Teachers
done over last few years...would put him in of the world and, in fact, for the venture
top quartile, or better than 75 percent of his capitalists. But it makes it more difficult
peers in the whole world. And he did that and much more painful for the creators of
doing a systematic approach to looking at these ventures.They just aren’t going to get
the opportunities of the risks of something as much money because it’s a function of
that other people weren’t looking at. That supply and demand.
sort of superior performance, as more peo- What many of you may not understand
ple start looking at this space, will become is that big investors like Cal Teachers, it’s
verdexchange news SPRING 2011
not just how they put the money to work
but also what they do. Brian, maybe you
can give an example of a campaign you
were involved in on an issue related to the
corporate governance space.
Mexico. I pointed out the extracted risk
management, and we sort of said,“Ok, what
other processes do you see within our
investment portfolio that have that type
of low-probability but, when the incident
occurs, pretty high cost.” We narrowed it
down, and said “Everybody’s looking at
offshore oil and gas drilling.” Onshore oil
sands is something we’ve been involved
with. We filed a proposal two years in a
row now with ConocoPhillips asking for
them for more disclosure on the financial
impacts of their oil sands operations. Look
at natural gas extraction, hydraulic fractur-
ing—what are the risks there? Is it as big
a risk as everybody seems to think it is?
And then looking at things like coal ash
disposal.You look at things like what would
happen in Europe, where a containment
pond that broke.
That got us looking, asking what com-
panies we should be talking too. I spent
the past six months talking to perhaps 25
or 30 companies in various sectors about
whether there were risk management
programs in place, how far up the com-
pany does it go, is compensation part of
the safety, and how do get RESG into your
overall systems.
Allan Emkin: Why that is so important is
that, as little as 10 or 15 years ago, anyone
who would have raised those issues would
have been called pinko, weirdo, or an envi-
ronmental nut. Now it’s coming from an
institution with $150 billion, and they’re
not alone. Those organizations acting in
concert truly make a difference.You hear
about it all the time, but corporate boards
are more sensitive to their investors than
they ever have been, because investors are
willing to do things didn’t do before: vote
on proxies, put proxies on the ballot, and
actively advocate for their payoff. •••
13
verdexchange news SPRING 2011

TOM DIPRIMA: KB HOMES THE FIRST BUILDER TO FILE A SUSTAINABILITY REPORT

(continued from page 4)

a structure in place where you would get an
additional refund check on a monthly basis.
You’d still have a gas bill, but then you’d be
paying additionally for the solar.We set out to
try to find that balance between net-zero.
One of the things we’ve learned in this
process is homes going far in the future, in
2020, are all going to have to be net-zero.
The real question is: will it be net-zero from
an electrical consumption or net-zero from
an overall consumption? To do that, we
would have to eliminate gas in the homes.
I look at it as a very clean and renewable
resource, and, as a cook, I’d rather have gas
than electrical.
Additionally,we set out as a builder a couple
years ago to improve our sustainability and our
green footprint.We are the first public builder
to file a sustainability report. It’s never pretty
to do, but you have to start somewhere. As I
always tell people, if you’re improving your
strength or losing weight, you have to start
from somewhere and measure where you’re
going.Subsequently,we have been recognized
for a lot of things.I’m happy to say in 2010,we
were recognized as Green Builder of the Year
and we were also recognized by CALPERT as
one of the leading-edge builders in sustain-
ability.We’re really proud of our efforts.
One of the things we’ve learned from this
project is that maybe we need to relook at
“The Statewide Strategic Plan mentions that a net-zero energy home or
building has to be both net-zero energy and net-zero gas. There are a
lot of people that agree or disagree with that. We could go into carbon
emissions and all that, and those may or may not change, but currently, in
the Statewide Strategic Plan, that is the margin.” -Chip Fox
net-zero. Currently, this roof tile we have on
here, because of the size of the roof, because
of the size of the home—about 1,800-square-
foot home—it reduces the same amount of
smog as a car driving about 11,000 miles a
year. There are no credits back in the hous-
ing industry for doing this, yet this is an area
where we are globally improving our carbon
footprint. There are going to be some new
things that need to be looked at with regard
14
to how we get to net-zero, what credits you
could give for other things...
...I’m currently building a multi-family
project, which we hope to be our first LEED
Platinum multi-family project. We’re doing
a case study on that project with Southern
California Gas, and we’re looking at a lot
of new initiatives to reduce our carbon
footprint while improving affordability.
Affordability for the home can’t just be
driving the price of the home down—how
do we take all the back ends of the home
and reduce those? One of the biggest is our
energy consumption.
“One of the things we’ve learned in this process is homes going far in the
future, in 2020, are all going to have to be net-zero. The real question is:
will it be net-zero from an electrical consumption or net-zero from an overall
consumption?” -Tom DiPrima
Chip Fox (SCE): I’m the New Construc-
tion Manager for Southern California Gas
Company and San Diego Gas & Electric, so I
spend a lot of time on the train between here
and San Diego...I want to talk a little bit about
what Sempra’s doing for net-zero.
You all know that Ed Mazirian, who was an
architect, put the 20/30 challenge together,
which the National AIA officially adopted. It
wasn’t long after that that the California Public
Utilities Commission convened a series of
workshops that the utilities, architects, cities,
and a lot of stakeholders were involved in,
to develop what now is referred to as the
Statewide Strategic Plan. In California, that is
the road map that all of us are on.You heard
from Tom about KB’s dedication to that plan,
participating in the utilities programs that I
managed for Southern California Gas Com-
pany, which help him as a builder to offset
the increased cost for putting in this type of
equipment by providing incentives to make
it more economically attractive as a builder
to consider, as well as the ultimate occupant
of the building.
In the San Diego and Southern California
Gas Companies,we have a very robust net-zero
program.We have energy-efficiency incentives
that we provide to both builders, whether
that’s a home builder, a commercial office
builder,whether you’re going to put in a class-A
office building, biotech, whatever it might be,
that does exactly what this is intended to do,to
offset those incremental costs.If we’re looking
at net-zero, this is not cheap.
Let’s just all face it.This is not a cheap thing
to do. It’s like any of you that are into home
theater.You’ve the early adopters that want to
go to the 7.1 surround sound with the Blu-Ray
player.There are guys out there that want to be
the first adopters, and they don’t care what it
costs. In this industry, you’re going to find that
there are the early adopters that really see the
message,they are the pied pipers and they are
willing to do these types of projects.
But there is incremental cost that has to
be absorbed that, even with the incentives
we can offer on a cost-effective basis, some-
times can’t be overcome.That is some of the
challenge that we see. You’ve got the early
adopters—but how do you get the KBs of the
world and the Brookfields, people like that,
the production builders, that will then want
to make this a standard.That’s going to be the
overriding challenge from a cost-standpoint.
We have two commercial net-zero projects
that are out the gate in San Diego.You’ve got
one which is an architectural office building in
Pacific Beach. It’s been built for almost a year.
That is currently—we’re tracking it now for
(More on page 15)

CHIP FOX: NET ZERO GAS & ELECTRICITY SHOULD BE A PRIORITY
(continued from page 14)
almost 12 months—producing more energy
on the grid than it’s actually using. It had a
very aggressive day-lighting strategy—facing
west, oriented the perfect way, pulls in all the
west-facing cool air, and expels it through
computer-controlled
skylights—it’s been a
phenomenal project for
that group. They got a
LEED-Gold rating off that
project.The construction
company DPR just com-
pleted a 24,000-square-
CHIP FOX foot project in San Diego.
It was a total gut rehab of
an existing building that is now net-zero.You
can go online and see what that building is
using on an hour-by-hour basis,based on what
they’ve got in there.
One thing I’d like to emphasize:when we’re
talking about net-zero, there are a lot of defini-
tions of net-zero.For me,as the utility manager,
the definition that I adhere to, believe in, and
what we do, is what the CPUC tells us it is.
The Statewide Strategic Plan mentions that
a net-zero energy home or building has to be
both net-zero energy and net-zero gas.There
are a lot of people that agree or disagree with
that.We could go into carbon emissions and
all that, and those may or may not change, but
currently, in the Statewide Strategic Plan, that
is the margin.
To Tom’s point about natural gas, yes, we
want to encourage that we can work with
builders, like him and others, as well as com-
mercial folks that want to make net-zero gas a
priority.That’s part of the equation here.Over-
sizing the PV system can do that or you can
put in solar-thermal, and there are a couple
opportunities here.Again, it’s all at a cost, and
if we can provide incentives to offset that, it
makes it more attractive.That has to be a key
part of the equation as we move forward, that
it’s not just net-zero electric.
Tom mentioned that all residential new
“...when you do net-zero, you just don’t build a code-compliant home or
office building, and then throw a bunch of PVs on it and say, “I’m net-zero.”
That’s defeating the purpose.” -Chip Fox
construction will be net-zero by 2020, and
all commercial new construction net-zero
by 2030—some very aggressive goals. How
are we going to get there? It’s going to take
three things. First of all, a California Energy
Commission, which sets code in California,
ratchets it down about every three years.
That’s somewhere between 8 to 10 percent
that gets ratcheted down every three years,
give or take. We’re going to see that ratchet
down probably 15 to 16 percent every three
years.
That’s going to take a concerted effort,
and we’ll hear this in the panel, when you do
net-zero, you just don’t build a code-compli-
ant home or office building, and then throw
a bunch of PVs on it and say, “I’m net-zero.”
That’s defeating the purpose.
You want to make sure that you incorporate
really deep levels of energy efficiency into
the project—on the envelope, the lighting,
the mechanical system—you really want to
go after this aggressively, which is where the
utilities and the energy efficiency programs
can come in.The manufacturers,all the people
that are involved in this—if you have a moti-
vated owner and design team that wants to
do this, we can step in and help.And then the
rest is made up through renewables, which
currently is either PVs or solar-thermal—there
are a lot of different opportunities out there.
But when we look at that, that’s the thing
that really needs to be driving the boat.It’s just
going to be adoption, it’s going to be confer-
ences like this where all of you are aware of
the Statewide Strategic Plan and the impor-
tance of us coming down the track to make
sure that that happens, as well as educating
builders, the media, and everybody else about
the importance of this goal.
The goal that we’re all going after is very
important and worthy.We want to leave this
world a great place for our kids and our grand
kids, and so this is all part of what we’re trying
to do. •••
verdexchange news SPRING 2011
INSIDER LOOK
The Green Innovation for the Built Environ-
ment: Designing & Building Net Zero Emis-
sion Buildings/Homes panel at VX2011 was
moderated by Steve Glenn, the founder and
CEO of LivingHomes, a
pioneer in prefabricated,
environmentally friendly
houses.
LivingHomes has
helped build and design
many single-family and
multi-family homes,work-
ing with architects such
as Ray Kappe, Russel STEVE GLENN
Witten, and David Hertz.
The standardized designs
and integrated environmental programs that
result from the LivingHomes design and
construction process have set new standards
for homebuilders, leading to reduced costs,
construction time, and ecological footprints.
The Ray Kappe LivingHome was the
nation’s first LEED Platinum home, and nine
Living Homes are currently in development
designed to reach LEED Platinum. Although
LivingHomes uses LEED program for external
review and validation, LivingHomes has also
established its own Z6 sustainable building
goals: Zero Water, Zero Energy, Zero Waste,
Zero Emissions, Zero Carbon, and Zero
Ignorance.
The BellesTownhomes—three-story,seven-
unit attached LivingHomes townhomes—in
the Presidio in San Francisco—recently
became available for lease.Designed by Kieran
Timberlake, the Belles Townhomes are the
only newly constructed residential buildings
in the Presidio,and the first multifamily homes
in San Francisco to receive LEED Platinum
Certification. The were developed by Forest
City and built in partnership withThe Presidio
Trust.
Most recently, LivingHomes announced a
sneak peak at a new version of a new Kieran
Timberlake LivingHome in Santa Monica.The
new house will have two bedrooms, a bonus
room, an indoor garden, and 1,585 square
feet. •••
SAVE THE DATE
VX2012 LOS ANGELES
JANUARY 22-24, 2011
www.verdexchange.org
15
verdexchange news SPRING 2011
RON NICHOLS ADDRESSED VX2011 ON HIS FIRST DAY AS GENERAL MANAGER OF L.A. DWP
(continued from page 1)
sure that there is regulatory certainty and
continuity. One of the great outcomes of
the election here on November 2 was that
Gov. Brown was elected, or re-elected 30
years later, to ensure that we do have policy
continuity in this area.
Ron Nichols (L.A. DWP): This is my
first day on the job, so I might use that as
cop out if we get some questions that I
can’t answer. I’m going
to talk about some of
the accomplishments
that the Department
of Water and Power
has in clean energy
and contributions to
the clean economy, but
I can’t take credit for
RON NICHOLS one iota of that. The
department has been working really hard
to meet the challenge that Mayor Villarai-
gosa put out there to have a cleaner and
greener L.A. One of the largest issues that
we’re dealing with in that regard, certainly
within the department, is dealing with the
implementation of the reduction of green-
house gases and compliance with AB 32.
So first, just looking generally at the
department’s achievements, and they’ve
been significant. We certainly recognize
that the department has mandates and
certain requirements as we go forward,
some yet to be fully defined under AB 32.
But regardless of that mandate provision,
the department fully supports the overall
spirit and objectives of AB 32 and is work-
ing at our utmost in our policy to advance
that. In fact, 2010 was a major milestone
year for the department. We’ve been play-
ing catch up.We’ve been playing catch-up
with respect to what the investor-owned
utilities have done. In 2010, we met our
20 percent renewable energy level for the
department on time, on schedule, and as
the mayor challenged the department to do
some years back.That’s a pretty important
achievement when you recognize that this
has been a short, and in utility time it’s
really short, seven years. Back in 2003, we
were at 3 percent.That’s an incredibly fast
16
ramp.We had some growing pains associated this conference, I don’t need to dwell on it
with it, but at the end of the day, we’re on here other than the fact that with the lack
the path where we need to be. of congressional action, having any kind of
Putting that in perspective for DWP, that’s comprehensive plan last year for carbon
roughly 4,500 gigawatt hours a year. That’s reduction, and in fact virtually all other
equivalent to about the annual energy use of states that had been going down the path in
700,000 average residential homes. It’s the a similar fashion as California have backed
equivalent in carbon and fuel reduction of away, which leaves us like the Statue of
taking 475,000 cars off the road. These are Liberty.We’re standing out there alone, mov-
big numbers.These are important numbers, ing forward and carrying that torch to deal
and we’re proud of that kind of contribution. with advancing the cause of greenhouse gas
But it’s not the only thing that we achieved reductions in the United States.
in 2010. The department has done a lot. That implication is important because
I’m proud of what they have done. That is we’re incurring a fair amount of cost
the lowest consumption of coal in the last overall within the department, and we
25 years. Also we’ve had the lowest total have economic issues to address. Having
cumulative water use for the department’s to compete with other states that either
customers since 1979. haven’t mandated that effort or haven’t
More importantly than that, we got there taken up the mantle creates some busi-
by having the lowest per capita water con- ness challenges in terms of competition
sumption ever recorded within the city in that we need to be aware of.The economy
this last year. It’s due to mandatory as well hasn’t been a big friend to us either. The
as voluntary water efficiency programs. other major challenge that we have here is
With water efficiency comes energy savings that back in 2006 when AB 32 was passed,
as well, so it comes hand in glove. Wrap the economy was incredible. We were at
together the renewable energy programs a record low 5 percent unemployment in
with the energy efficiency programs that California.Today, we are at the third highest
we’re still ramping up strongly on, and that rate in the nation, with the state hovering
comes to a carbon level that is 22 percent around 12 percent unemployment and the
“In 2010, we met our 20 percent renewable energy level for the department
on time, on schedule, and as the mayor challenged the department to do
some years back. That’s a pretty important achievement when you recognize
that this has been a short, and in utility time it’s really short, seven years.
Back in 2003 we were at 3 percent. “ -Ron Nichols
below where we were in 1990. That makes legislature struggling to fill a $25 billion
the department very proud of the contribu- deficit. L.A. has a deficit, depending on the
tion that it’s made to the mayor’s cleaner and number that you look at today, somewhere
greener L.A. goal. in the order of $450 million, which we’re
But that comes with a lot challenges. trying to come up with while we have
I’ll talk about the issues and challenges of 13 percent unemployment. That adds just
California effectively going it alone in carbon huge pressure, when you’re dealing with
reduction on a comprehensive basis, the that kind of economy—making certain that
effects of slow economic recovery, and the whatever you do to meet requirements and
competing needs we have for dollars within goals to reduce carbon emissions, that we
the utility and how that challenges it. First do so in a way that doesn’t further exacer-
talking about going it alone, there has been
(continued on page 17)
a fair amount of discussion about that at
 verdexchange news SPRING 2011

VX2011 PLENARY: CALIFORNIA’S AB 32 REGULATIONS STILL NEED FINE TUNING

(continued from page 16)

bate that problem as we go forward. And time, we’re trying—not trying to, we have in that regard as part of the carbon reduc-
go forward we must. to—to balance that with moving forward tion and part of the cap-and-trade effort, or
Looking specifically at DWP, the chal- from not only the proud point that we’ve we’ll never get there.
lenges that we’re looking at are unprec- gotten to now with renewable energy but We have major transmission highways
edented scrambling for competition for ramping up further as we get to both the that bring resources here that are also
the limited dollars we have available goals and requirements of AB 32. opportunities to bring renewable energy
within our resources. The big-ticket Why is this such a big challenge? All the here. We want to develop it here. It’s bet-
items are our power reliability program. utilities are dealing with this in California. ter to develop it here for jobs; it’s better
We have an aging system. That’s not Why is it such a big challenge for the to develop for our local economy and our
unusual for a lot of major utilities. I see Department? It is because the present local businesses. We need the flexibility
a nodding head by Mike Hertel here, so
they’re dealing with it as well. Right now,
just in replacing the electric distribution
“[L.A. DWP had] the lowest consumption of coal in the last 25 years. Also
system—upgrading and taking care of we’ve had the lowest total cumulative water use for the department’s
old things—is a billion dollar program
for doing that for a long-term program.
customers since 1979.” -Ron Nichols
We have four major aging gas-fired power
plants in the system in the L.A. basin, and mix is about 5 percent hydro, 10 percent to bring it from wherever it’s the least
we’re re-powering those. We’re increas- nuclear, and 20 percent renewable, which expensive. All of our options need to be
ing those, repairing and replacing them I’m happy to see. But the remaining 65 able to account for cap and trade. We
for reliability purposes, and for efficiency percent is fossil fuel, and almost 40 percent may well need flexibility on time lines
purposes, and installing dry cooling. of that is coal. Moving away from that long- and ramp up, and I’m sure you’ve never
We’ll spend—from 2013 to 2015—$1.4 term historic reliance on coal—out-of-state heard that before.
billion for that alone in those two years, coal—is a huge and expensive effort. Just But overall, if we balance it right and we
three years. making the transition that we’re talking work it right, California can sustain leader-
Then we have something that sounds about from 2012 to 2020, our estimate ship in climate change policy. I know the
boring and arcane for most people sit- is about $11 billion that we’re going to Department of Water and Power and the
city of Los Angeles will be major players
in that. But if we get it wrong, it will set
“We have four major aging gas-fired power plants in the system in the L.A. back the greenhouse gas reduction and
basin, and we’re re-powering those. We’re increasing those, repairing and carbon reduction efforts by years, not just
in California, but nationwide and beyond.
replacing them for reliability purposes, and for efficiency purposes, and If we get it right, and I do believe we will
installing dry cooling. We’ll spend—from 2013 to 2015—$1.4 billion for that get it right, it will help us lead the nation
in what can and should be done in those
alone in those two years, three years.” -Ron Nichols endeavors.

ting in the room: once-through cooling.
Three of the four plants I’ve just talked
about here in the basin use once-through
ocean or estuarial cooling. That creates
local marine life impacts that are of
significant concern. The State Water
Resources Control Board has come up
with a program that we’re still discussing,
but as planned out right now it’s going
to cost us about $2.2 billion to fix that. It
comes out to $220 million a year. These
are big numbers, and add them together
and it gets pretty serious, or at least it
certainly does in my book. At the same
spend to get there. It’s not chump change.
We need a plan that works to meet those
goals, and we need a plan that works that
we can afford.
What does that mean in terms of what we
need to do? We still need to fine-tune the
Scoping Plan of the implementation of AB 32.
One is we need flexibility—flexibility among
strategies and flexibility among alternative
measures that we’ll take. Meeting 3 percent
of our energy needs today with energy
efficiency, we’re lagging the investor-owned
utilities. We need to get to 10 percent by
2020.We have to full recognize what we do
James Goldstene: Thank you Ron.That’s
pretty good for your first official day, very
good. On your closing point there, we are
proud of the fact that California, both in
government and in the private sector, is
seen in this country and around the world
as leaders in this kind of effort and, of
course, many other efforts as well.
An example of that is actually something
that was announced today coming out of
the White House, which is confirmation
of the promise that we’ve made, the
(continued on page 18)
17
verdexchange news SPRING 2011
HERTEL: SCE HELPING CARB FOCUS ON THREE KEY COMPONENTS OF AB 32
(continued from page 17)
Department of Transportation has made,
and the U.S. EPA has made on the next
stage of passenger vehicle standards for
2017 and beyond. This is known as Pav-
ley 2 in some circles, which is really the
next round of clean car standards. We’ve
made a commitment to working on that
together with our partners at the federal
agencies. This is actually something that
President Obama alluded to last week
in an op-ed in the Wall Street Journal.
Of course, with his support we’ve been
able to move forward with our partners
at the federal agencies to improve fuel
economy standards and greenhouse gas
reductions for passenger vehicles. Under
the current so-called Pavley 1 standard,
we’re already under the 35-mpg goal,
and the next round of standards will go
higher. This creates lots of opportunity
for these partnerships make a huge dif-
ference in improving the environment
and also providing opportunities for
many of you.
Mike Hertel (SCE): I had the occasion of
briefing our senior executives about cli-
mate change. Southern California Edison
and Edison International made its first
pronouncement about climate change
“What we are doing here in California through AB 32 will not help unless
it becomes a model for a national approach and hopefully a model for an
international approach.” -Mike Hertel
in 1991, when we pledged to reduce
emissions by a significant amount. I told
them then that the then-recent Inter-
governmental Panel on Climate Change,
endorsed by the National Academy of
Sciences, had concluded that tempera-
tures were likely to rise by the end of the
century by 1.4 to 5.8 degrees centigrade.
That’s a very substantial amount. None
of that has changed. In fact, recently the
story seems to be getting a bit worse. I
give you that to remind us that the root
question here is a significant question
for all of us. I also pointed out that no
18
matter what we did in the United States
(we were then embarked on considering
cap and trade at a national level) none of
that would do any good unless we were
somehow able to get the international
community to buy into the process. We
know where that has gone recently, and
we know where the national program has
gone recently.
But that still is a challenge before us; we
still have to make that change. I reminded
them then that China was building one
1,000-megawatt coal-fired power plant a
week, and that has not changed either. I
won’t even mention India and the rest of
the developing world. What we are doing
here in California through AB 32 will
not help unless it becomes a model for a
national approach and hopefully a model
for an international approach. That’s the
challenge that James [Goldstene] and his
staff have had in putting AB 32 in place.
Many of you have worked on that. We
certainly have worked hard to try to make
that a very functional program. We now
have a set of resolutions that the board
adopted in December that many of you
know about. Unfortunately, it’s given James
[Goldstene] a lifelong career if he wants it
of putting meat on those bones and getting
to the details.
I’m going to talk about three of the
major parts of those resolutions that we
have to focus on now and help the ARB
work through over this next year. First
is the issue of allowance allocations. The
state mints these allowances; they are
the bread and butter to the cap-and-trade
program. They have decided, quite wisely,
that these allowances should be given
freely to the utilities and to trade-exposed
industries. The logic behind that, in the
case of the utilities, is that we’re trying
to moderate the cost to the program, but
we’re also trying to make sure that the
value of those allowances returns to the
utilities’ ratepayers through the regulated
entities of the California Public Utilities
Commission, in our case, and the boards
and commissions that
run the public utilities.
It’s generally thought
that you can believe
that those regulatory
processes are going
to result in that value
being applied to imple-
menting AB 32. That
helps a lot. We are part MIKE HERTEL
of an auction. We have
to return those allowances to what’s
called a double-sided auction, in which
we put in and buy from the auction simul-
taneously so the market still forms.There
is a true price of carbon, and that price
of carbon will drive the right behaviors
going forward without the unnecessary
heavy hand of intervention.
I say that with some tongue in cheek.
It’s not necessarily a heavy hand, but
making the right choice all of the time is
awfully difficult. Despite the small size of
ARB, I will say that there are many more
of us than there are of them, and we tend
to make decisions from a business stand-
point, which in our society at least is the
way that we’ve chosen to go. So allowance
allocation and distribution is one of the
big things on James [Goldstene’s] plate.
We’re bought into that, as I know many
of you are to try to help with that.
Market architecture is a serious issue.
We were very concerned because of our
experience in the California electricity
market, which, if you all recall, was a little
less than optimal.That turned out to be a
virtual disaster for a while, even though
every smart person in the room, without
exception, believed that it was going to
work as planned. We’ve encouraged the
ARB, and to our great satisfaction, they’ve
taken up the cudgel of figuring out how
to design these market rules so that the
(continued on page 19)

GOLDSTENE: WAXMAN-MARKEY CONGRESSIONAL BILL FAILED TO DELIVER FEDERAL LEADERSHIP
(continued from page 18)
operation of the market does what it’s
intended to do, bringing us carbon reduc-
tion at a price that is legitimate, valid, and
not gamed.
Finally, offset supply, because we can’t
see the future. We’re concerned that in
certain situations, the market could see
that the compliant entities might not be
able to buy enough of the allowances
back from that double-sided auction that
we talked about, or from secondary mar-
kets, or even tertiary markets, to be able
to comply. Offsets provide a great option
for accomplishing that goal, and also for
potentially holding down the overall
price of carbon. If we’re going to look at
what’s going to happen nationally, as we
did with the Waxman-Markey bill, which
we support, offsets are a huge aspect of
selling this program nationwide.
The state of California has a lot of
energy goals, and many of those goals
tend to conflict. It is our great resolve
to work with the many government
agencies that play in this arena to try to
resolve those differing conflicts in a way
JULIAN GRESSER’S VX2011 CASE STUDIES: STRATEGIC USES OF INTERNATIONAL CAPITAL
(continued from page 1)
Then a client called Getz Bros showed up.
Getz Bros was owned by the Pritzker family.
It had a branch in Japan of $8 million after
tax. It was a trading company specializing in
the medical area—cardiovascular products,
heart valves, pacemakers, and the like. It had
short-term contracts; none of these products
were theirs. They represented St. Jude and
other major American hospitals, and they
introduced these leading products through
the channel to Japan. The Pritzker family
had lots of money, but they wanted a way
to expand market share in Japan. That’s the
key point that we’re going to start building
on today.
We immediately ran into what I came to
call the negotiating code. Nikko Securities,
when we met them the first day, tried to
cook the deal in the first meeting to be the
underwriter. They ultimately succeeded. We
that achieves the goals. And I’m just citing
a few here. We’ve got AB 32 of course,
which you’re all familiar with. Let’s not
forget Governor Schwarzenegger’s execu-
tive order to reduce 80 percent by 2050,
which is a huge challenge. We’ve got the
renewable energy standard and another
bill on renewable portfolio standards,
moving from where we are today to 33
percent of renewable power in the future
by 2020.We’ve got Gov. Brown’s campaign
pledge to look hard at 20,000 megawatts
of new renewable capacity by 2020, a
huge challenge, 12,000 of which would
be distributed renewables. We’ve got all
these challenges of how do we site the
transmission lines to bring this power into
the grid, which we’re in the midst of trying
to spend roughly $5.5 billion in the space
of about a decade, a really difficult task.
It’s not like we’re laggards; we are trying
to get this done.
We have all of these different problems
that interact. Ron mentioned the once-
through cooling problem, which is one of my
favorites to illustrate the problem because
set out together with Nikko Securities as our
main underwriter, and Jafco Ventures, which
is a venture capital company, just set up at
that time, part of the Nomura group, came on
board as a quote “stable shareholder.” They
had a branch, and as I said, you can’t take a
branch public in Japan. So we had to set up a
new company and move the assets into this
new company, and then we set about it.
To compress, in the interest of time, a saga
of negotiations, we succeeded years later.We
took Getz Bros public at 47-times earnings.
The Pritzker family made $90 million the first
day of the offering, and the thing climbed to
$1.2 billion from $8 million in seven years.We
used it as an engine to build close relations
with the financial community and with the
government—to knit the customers close
to us. We built strategic alliances, and we
expanded market share. This is the central
verdexchange news SPRING 2011
those old dogs that we all rely on, those
gas-fired power plants that are boilers on
the coast, aside from the two nukes that are
also subject to the policy, they represent a
huge chunk of the capacity needed to serve
peak demand at the hottest summer period
and to integrate that intermittent renewable
power, with enough spinning reserve here
in the basin to make sure that when you flip
the lights for an MRI or a light bulb to come
on that everything works as intended.
James Goldstene: The question about
federal leadership is vexing sometimes,
because when we were designing the
cap-and-trade program, we in California
were hoping that Waxman-Markey or that
some version of one of the Lieberman bills
would pass and get through. But that never
happened. We in California are providing
the leadership, and we have to get it right.
People are looking at how we structure the
market; they’re looking at the incentives
for creating offsets and how we’re going
to handle that.All of this works together in
a very delicate balance. •••
point. We expanded market share, using
the IPO financing as a way to finance it. It
wasn’t just that we wanted to raise money.
No, we used this system, which we created
with the venture capital companies moving
against their better instincts and becoming
long-term players to build Getz Japan. That
was the model. Then Goldman Sachs and
many others came in and emulated it. It set
up this style, which we than described in
the Wall Street Journal article “Going Public,
Japanese Style”...
Mario Marconini (Brazil): What I’ll do is just
give a general perspective of Brazil, Bovespa,
and then I’ll go into the focus on capital
markets and green technologies. What you
see happening in Brazil is the result of a lot
(continued on page 22)
19
verdexchange news NOVEMBER 2007

NRDC’S GARRISON: STORMWATER THE LEADING SOURCE OF SURFACE WATER POLLUTION

(continued from page 11)

runoff, as it hits the paved surfaces and is ern California’s case, into the nearest river or that amount of water. In many places,
directed into storm drains and the nearest directly into the ocean, causing pollution. there aren’t drain systems equipped to
receiving water body. We create a lot more This stuff picks up with it anything that deal with this.
runoff and carry with it a lot more pollution. happens to be lying on the street—on a And we pollute the waterways...Instead
What we see is that in many areas of the parking lot, on a rooftop, or anywhere—and of causing ponds and lakes and sheet flow
country, 5 percent, 10 percent, 25 percent, shunts it into the storm drain system. That on our paved surfaces, let’s use permeable
or more of the surface water bodies are not means metals, oils, bacteria, pathogens, ani- surfaces, porous pavement, and perme-
meeting water quality standards. able pavers to let the water soak
They are impaired.We cannot use into the ground. Let us recharge
them without treating them, or groundwater aquifers that we
we cannot use them at all. This is draw water out of and prevent it
a tremendous waste that is caused from running off and picking up
largely by stormwater. Stormwater pollution and carrying it to receiv-
is the number one cause of surface ing waters. At the same time, we
water pollution in the country. can capture water directly using
The more we develop land, the rain barrels, or for larger sites using
more water we use and the more tanks and cisterns.We can capture
pollution we generate. When you that water and use it on site.
have no development, typically Just from an energy use per-
in most areas you’ll get as much NRDC spective, this has a tremendous

as 100 percent of the water will According to Noah Garrison of the NRDC, “The more we develop land, benefit. It takes almost no energy,
either soak into the ground natu- the more water we use and the more pollution we generate.” or literally no energy, to use water
rally or it will evaporate.Trees will out of a rain barrel if you’re using
take it up, or it will evaporate off the ground. mal waste—all of that is picked up and car- gravity flow.You have a resource that comes
Only somewhere in the order of 10 to 20 ried into the nearest receiving water body down, it’s filtered out, or you have a flush
percent of the rainfall will actually occur as ...In Los Angeles we have literally device to clear out the first wave of con-
runoff. As you start developing, you change paved over the environment. This is a taminants. After that, you have clean water
that landscape, so even with moderate-scale tremendous amount of area that we’ve for on-site irrigation at absolutely no energy
development, you see that you’re down to turned from open, undeveloped space cost. Even for cistern systems, where you’re
30-60 percent infiltration and evaporation. into paved surfaces like parking lots, using a pressurized system, pumping water
Somewhere on the order to 40-70 percent streetscapes, rooftops, and any number to irrigation or indoor use for toilets or
becomes runoff. By the time you get to a of other impervious surfaces that we’ve other non-potable applications, like building
dense cityscape, such as Los Angeles, you’re put into the landscape. It drastically alters cooling makeup water, it’s only a couple of
seeing almost no infiltration or evapora- the flow of water. We end up with flood- hundred kilowatt-hours-per-acre-foot, far
tion, and almost all of the water occurs as ing because we’ve greatly increased the less, 10-20 times less, than the amount of
runoff—80-100 percent of it will be directed amount of stormwater runoff that occurs, (continued on page 21)
into storm drain systems, sent out, in South- and the storm drain systems can’t handle

“As you start developing, you change that landscape, so even with moderate-scale development, you see that you’re
down to 30-60 percent infiltration and evaporation. Somewhere on the order to 40-70 percent becomes runoff. By the
time you get to a dense cityscape, such as Los Angeles, you’re seeing almost no infiltration or evaporation, and almost
all of the water occurs as runoff—80-100 percent of it will be directed into storm drain systems...” -Noah Garrison
20

RUNOFF CAPTURE AT COMMERCIAL & RESIDENTIAL SITES COULD SAVE 120,000 ACRE-FEET PER YEAR
(continued from page 20)
energy we use to import water from North-
ern California or the Colorado River.We have
a resource supply benefit here in the source
of water, we reduce the pollution that the
storm water would be causing, and we also
use far less energy to supply that water in
the first place.
Using the best available conventional
best management practices to treat and
take care of runoff before it’s discharged
and using engineered solutions that remove
water from the site and pump it into the
storm drain system, we’re only seeing
about 60-80 percent pollution capture at
best. You’re still discharging a tremendous
amount of pollution from a site, even when
you have these practices in place trying to
clean up the water before it’s discharged
into the storm drain system.
With low-impact development or green
infrastructure practices that retain the water
on site such as infiltration or capture and
harvesting, you prevent 100 percent of the
volume of pollutants in that volume of water
from every reaching our receiving water.
Soak the water into the ground and the
soil will take care of the pollution naturally.
Capture the water on site and reuse it for
irrigation, and again you’re directing it to
pervious areas where the soil will naturally
take care of the pollutants.You prevent all of
that pollution from ever reaching receiving
waters. So again, you have a supply benefit,
and you have a tremendous benefit from a
pollution standpoint.
Finally, we did a case study extending these
practices, capturing the water, infiltrating
“That’s about one-sixth of the total supply used by the city of Los Angeles annually captured just through
natural practices. The impact of that is if you could offset the need to import the water from Northern California
or the Colorado River, you could save something on the order of 270,000 to 580,000 megawatt hours per year
in energy savings.” -Noah Garrison
verdexchange news NOVEMBER 2007
it into the ground, and using it to recharge ers, property owners, and communities
groundwater, to find out how much water while protecting and restoring water quality.
and energy could we save if we applied this The National Association of Homebuild-
all across California. We found that if you ers (NAH) said essentially the same thing.
applied these practices to new development NAH stated that if you ever wish you could
and redevelopment, just at commercial and simultaneously lower your site infrastructure
residential sites—ignoring the industrial sec- costs, protect the environment, and increase
tor and public and government buildings,just your project marketability, using low-impact
applying this to commercial and residential development practices you can.
use—by 2020 you could capture something This is something we absolutely need
on the order of 120,000 acre-feet per year. to start putting into place in development
That’s about one-sixth of the total supply used throughout California and throughout the
by the city of Los Angeles, annually captured country, and it’s something that should be
through natural practices. encouraged.This is something that will save
The impact of that is if you could offset money for all parties, will protect our waters,
the need to import the water from Northern and will increase our water supply. •••
California or the Colorado River, you could
save something on the order of 270,000 to
580,000 megawatt hours per year in energy
savings.That’s taking into account the amount
of energy it would take to pump the water
back out if you’re recharging groundwater or
to install small pump systems on cisterns and
tanks to pump water indoors or for irrigation
systems.The energy savings are tremendous,
in addition to 120,000 to 250,000 metric tons
of carbon dioxide you’re preventing from
going into the atmosphere every year.
I want to make a final point that this should
be a no brainier. It’s cheaper to develop prop-
erties this way than it is to develop properties
using these conventional pipe and gutter and
storm drain systems. Using low-impact devel-
opment or green infrastructure practices is SAVE THE DATE
cost-effective. The U.S. EPA has found that VX2012 LOS ANGELES
implementing well-chosen low impact devel- JANUARY 22-24, 2011
opment practices saves money for develop- www.verdexchange.org
21
verdexchange news SPRING 2011
BRAZIL’S MARCONINI: EXPANDING MARKET SHARE IS THE CENTRAL POINT
(continued from page 19)
of homework, politically, economically, and
in the green area. Sometimes people don’t
notice or don’t know, perhaps, how green
Brazil already is on a daily basis. The genesis
of this was in the ‘1970s with the debt crises.
The government, which was then military,
made a decision that strategically we have to
have hydro, we have to have oil, and we have
“We built strategic alliances, and we expanded market share. This is the
central point. We expanded market share, using the IPO financing as a
way to finance it. It wasn’t just that we wanted to raise money.” Julian
Gresser, Manatt
to have a lot of biomass. And from that, we
started with the alcohol program,which is the
genesis of what we see today, even though it
is totally different today.
What we see in ethanol is a very successful
policy, but that’s how it started. Hydro has
been with us for a long time. It’s perceived as
the type of green technology and energy that
will save us—that will constantly put Brazil
on the green map and will be able to address
all of our energy needs.The result of this has
been an energy mix that is very favorable.
Almost half of the energy mix in Brazil is
green. Some 15 percent is hydro; 31 percent
is biomass. Oil derivatives add something like
37 percent;coal is at 6 percent.If you compare
coal, the rest of the world is at 25 percent.We
see OECD countries at 21 percent, so this is
pretty positive stuff.
In terms of emissions (speaking of climate
change as such) the real problem for Brazil and
the world is deforestation in the Amazon—not
only in the Amazon but also in the Cerrado,
which is the midwest of the country. That’s
61 percent of our emissions.The government
has committed already at Copenhagen and
reiterated it in Cancun, by law, not just verbal
commitments, that it will cut 24 percent
of deforestation. It has in the last few years
cut some 35 percent already of the level of
deforestation. People are pretty optimistic
about this.As a matter of fact, if Brazil does it’s
homework on deforestation, by 2020, as it has
committed to and has been doing, it will prob-
ably do a lot more in cutting emissions than
22
the average OECD country has been asked
to do in this international negotiations or
internally.This is pretty positive.
Fifteen percent of the emissions are from
energy.Of energy,industry uses 3.6 percent,
which makes industry one of the least pol-
luting industries in the world as far as com-
parisons are concerned.Transportation is 6
percent.As I mentioned, the commitments
to do away with emissions is 24.7 percent
from land use—basically from the Amazon
and the Cerrado—farming and livestock 6.1
percent, and energy 7.7 percent reductions
by 2020.And this is of course a best kind of
background you can have in terms of where
is the investment going to go.
There is a huge dilemma now in the
energy mix in Brazil. We often joke that
President Lula “has his behind facing the
moon,” which in our language means that
“[Hydro is] perceived as the type of technology, the type of green
technology and energy that will save us—that will constantly put Brazil on
the green map and will be able to address all of our energy needs.” Mario
Marconini, Brazil
he is a very lucky guy. We’ve had a very
positive commodity situation in the world,
which basically has driven the growth in
Brazil. One of the other lucky things that
some people think is lucky, and other
people don’t think is so lucky, was the oil
discoveries of the pre-salt reserves—petro-
leum—seven kilometers below the sea.
Petrobraz has the technology it needs to
prospect that. It’s still missing something
like $800 billion, but ultimately it will get
to that point. There’s a huge investment
that’s going to be made. Looking at the
sort of disaster you’ve had recently in the
United States, a lot of people are especially
concerned about that type of technology.The
dilemma is that all of a sudden when Brazil was
consolidating itself as a very green country, it
could be the fifth producer of petroleum in
20 years, therefore going a little dirty.What are
the policies looking forward going to be with
regard to petroleum?
Hydro is a bit of the salvation item for our
energy mix. Hydro has a lot of problems also,
because most of what is being planned is huge
hydro in the Amazon region.That creates a lot
of green problems. A lot of the projects have
not thought about the effect on transportation,
internal waterways, and navigable channels on
the side.This has not been well planned.There
is a huge fight now, for example, discussing
one specific hydro plant, which is something
like three gigawatts of potential energy.This is
something that has created a lot of debate in
the country.A lot of the environmental people
are not happy.This is going to continue to be
with us for a while. But it is pretty clear that
smaller hydro is here to stay.
Clearly, biomass is going to continue. Clearly,
a lot of wind is going to continue. It’s picking
up—20 percent growth a year in wind energy.
Solar, 90 percent of silicon is found in Brazil,
which is used for photovoltaic panels, so that’s
very important. Rail transportation is only 25
percent of our transport mix.
Going into capital markets, Bovespa has
been doing extremely well. Last year, they had
a historic record of $1 trillion in trade volume,
which is its highest. In terms of market cap, of
the 381 companies negotiated by Bovespa, the
market cap is at $2.56 trillion, also a historical
high, which puts Bovespa at about tenth place
in terms of market cap, perhaps fourth place
in terms of trade volume.Thirty percent of the
national portfolio of Bovespa is concentrated
in two companies, Petrobraz, a petroleum
(continued on page 23)
 verdexchange news SPRING 2011

MARCONINI: GREEN EFFORTS IN BRAZIL HINGE ON CULTURAL SHIFT

(continued from page 22)

company, and Vale, which is the mining giant. vanguard area. This company has been suc- because clean tech is infrastructure, right?
Twenty-four percent of market value is actually cessful in seeking out the capital markets. This is bolts; this is metal; this is electrons;
between Vale and Petrobraz. On wind energy, with 20 percent growth, a this is fuel. In clean tech, project finance
Getting to the sustainable and the clean in company called Renova Energia has just done is required if you’re going to develop your
Bovespa and capital markets, everything in its IPO.There is something like 70 gigawatts technology or deploy it at any kind of scale.
Brazil hinges on the culture issue.It is clear that of potential wind energy in Brazil, against When we think of a clean tech, when you
the Amazon and Cerrado are going to be the what the world has as capacity, which is 13.5 think about the kind of scale that we need
two regions most effected by climate change, mw. Brazil only has 237 megawatts at the to deploy clean technology just to move the
so they cannot rely all that much on hydro moment, with 15 power plants. It’s a huge needle on carbon,never mind solve our prob-
anyway. To the extent that people begin to area, 20 percent growth, and that’s definitely lem, it’s absolutely enormous. It’s trillions of
notice that you have to do things in a greener going to go forward. Another one of course dollars, right? That’s the market pull that will
way, because it’s a good economic reason to is waste treatment.The crown jewel in this is create demand for these companies that go
begin with,this is going to increase the interest Sabesp,which is the São Paulo state sanitation through these processes. Key to that is low-
in capital markets. company—market cap at $6 billion, which cost debt. Debt is very hard to get, as we all
know, and there is a solution that I want to
“In other words, when companies think about going for an IPO, or being in talk about that has been adopted in Europe
and is being looked at in Ontario: the green
the Brazilian market, they are already facing the prospect of having to go bond. What this is not is the government
greener if they want to be more public, if they want to be more transparent issuing a bond, raising a bunch of money,
and spending it. That is well understood,
and be present in the market.” -Mario Marconini and we’re a bit anemic to that now. This is
different.
Bovespa has been doing a lot of its work has done extremely well. Then of course There is money out there.There is a lot
because it created a so-called business sustain- you have things like ethanol, where things of capital sitting in money markets, sav-
ability index in 2005,with some 40 companies. are a bit divided. Ethanol, because it is a very ings accounts, and traditional government
One of the criteria for these companies to traditional sector already in the economy, a bonds. This money is not available for
integrate that group is, of course, sustainability, lot of families involved,has not really gone for long-term clean tech infrastructure right
not only environmental but also social and so the capital markets all that much,basically has now because it is perceived as being a
forth—the triple bottom line of environmen- found strategic investors for the most case, high-risk enterprise. Forty percent of the
tal, social, and economic. To that there has as has been the case with Kozan and Shell cost of solar is the cost of debt capital.
been added an additional index, the ISO 2, or has been the case with Petrobraz and São That’s what’s holding back companies
the efficient carbon index, which has added Martinho, which is the biggest ethanol plant that have raised equity from being able to
the actual accounting of emissions, of specific in the world. deploy their technology at scale. There’s
emissions of specific companies.That is really no debt for them. And it’s hard to make
something that has sparked a lot of interest Tom Rand (MARS): You’ve just heard some your energy costs competitive when you
these companies. In other words, when com- very cogent accounts of capital raising—using have a high carrying cost of debt. The
panies think about going for an IPO or being in capital markets and leveraging differences in trick is to bring that cost of debt down
the Brazilian market, they are already face the international markets to lever a higher IPO in the face of perceived risk. The role of
prospect of having to go greener if they want amount to generate more equity. One thing I the green bond is simply a government-
to be more public, if they want to be more would point out is that clean tech is not like backed bond.The government would back
transparent and be present in the market. IT, right? The differences in clean tech begin the bond; therefore, you have very low
Just to finalize with a couple of examples, of to kick in after you have equity in the bank. I cost of capital. The government doesn’t
course if you look at the different segments, want to pick up on a little bit on what might spend it. It is bid on by the private sector
there is a great variability in terms of how happen there. We know what market push to manage the money, and the private sec-
they use the capital markets. For example, in is like, right? This is a standard innovation tor is given a very clear mandate. Lower
hydro, a company called Energias Renováveis cycle—this is where I worked, this is where carbon emissions, and you will be paid
has invested 180 million reais, something like my colleagues work, you develop some tech- as money managers, as fund managers,
$100 million,in small hydro plants.That is a big nology, file some IP, do a seed round, do an A your bonuses dependant on how much
area.What I was saying about hydro applies to round, go to the public markets to get equity, it costs me, the government, for having
the giant hydro plants and the problems they and build manufacturing capacity. (continued on page 25)
run into, but the small ones are really a sort of That’s where the analogies with IT end,
23
verdexchange news SPRING 2011
NICHOLS OP-ED: CLEAN AIR ACT CONSISTENTLY OUTPERFORMS EXPECTATIONS
(continued from page 1)
The legislation would rob our country
of one of its most powerful tools to
reduce not only carbon pollution and
consumers fuel expenses but also our
dependence on foreign oil.
At issue is the preemption of the federal
Clean Air Act, one of the most successful
environmental laws in U.S. history. For
40 years, opponents have claimed that
environmental regulations will lead to
“regulatory train wrecks” and economic
devastation. During that same 40 years, the
Clean Air Act has dramatically improved air
quality, leading to documented improve-
“...the Clean Air Act has dramatically improved air quality, leading to
documented improvements in public health and generating over two trillion
dollars in benefits for the American people...” -Mary Nichols, CARB
ments in public health and generating over
$2 trillion in benefits for the American
people, and creating markets for clean and
energy efficient technologies that are now
in use worldwide.
Some of the current dialog is eerily
familiar. Recent quotes from Chairman
Joe Barton (R-TX) as he “welcomed” EPA
Administrator Lisa Jackson to what he
promised would be the first of many
“oversight” hearings echoed the lan-
guage he used the last time the Repub-
licans were in control of the House and
he occupied the chair of the Energy and
Commerce Committee. In 2004, I was the
Assistant Administrator for Air and Radia-
tion and organized industry opponents
were trying to undo the provisions of the
1990 Clean Air Act Amendments that for
the first time required major industrial
polluters to install in-stack monitoring
equipment and face stiff federal penal-
ties for violations of their permit limits.
The same coalition fought to strip EPA of
authority to limit toxic air contaminants
or require states to update their feder-
ally-enforceable plans to meet health
standards through simple measures like
cleaner fuels and periodic smog testing
for older vehicles.
24
As a current and former state air have allowed industry to unleash engineer-
agency official with 35 years of experi- ing ingenuity on emission controls and
ence in a state that has often challenged implement them cost-effectively. The rules
EPA’s implementation and interpretation have consistently been less burdensome,
of the law, I do not support efforts to strip less costly and more beneficial than even
the agency of its authority over those supporters expected.
air contaminants that are contributing Some of the most cost-effective smog-
the largest share to the global problem control measures and dramatic percentage
of climate change. Of course we would reductions in smog -forming pollutants, like
prefer comprehensive federal legislation catalytic converters on vehicle tailpipes
to address the problem with new tools and the requirement for unleaded gasoline,
and incentives. But that is not what the occurred early in the Act’s history. The same
sponsors of this bill are proposing. They thing is happening as the car companies
wish to bury the entire topic. begin tackling climate-altering pollution.
Improvements in manufacturing techniques
and off-the-shelf technologies are already
beginning to improve fuel economy and
save consumers money at the pump. EPA’s
technical expertise and existing regulatory
programs offer the best available strate-
gies to accelerate the nation’s transition
Ironically, the Clean Air Act is already to clean, efficient, and secure energy. The
reducing greenhouse gas emissions most developed and deployable of these
from mobile and stationary sources with measures—those affecting vehicles, fuels,
remarkable cost effectiveness.The current and power plants—also are the ones most
phasing-in of more stringent federal health important to launch as soon as possible.
standards for ozone and fine particles Our first exposure to the new EPA permit-
yields, at no additional cost, real reductions ting process for major sources of carbon
in greenhouse gas emissions along with emissions was encouraging. The Russell
the intended reductions in premature City Energy Plant, being built by Calpine
deaths and illnesses, lost workdays, and Corporation in partnership with GE Energy,
“Ironically, the Clean Air Act is already reducing greenhouse gas emissions from
mobile and stationary sources with remarkable cost effectiveness. The current
phasing in of more stringent federal health standards for ozone and fine
particles yields, at no additional cost, real reductions in greenhouse gas
emissions along with the intended reductions in premature deaths and
illnesses, lost workdays and health care costs.” -Mary Nichols, CARB
health care costs. The great success of was approved last year with the nation’s first
the Clean Air Act—conveniently ignored carbon pollution limits determined in the
by the U.S. Chamber of Commerce—has Best Available Control Technology (BACT)
been its ability to catalyze innovation that process before it was required by EPA.The
achieves emission reductions faster and Russell City Energy Plant is a model energy
more cheaply than industry expected. development—sensible, predictable carbon
Rigorous, performance-based standards,
(continued on page 13)
with long lead times and phase-in periods,

MARYNICHOLS OP-ED
(continued from page 24)
regulation under the Clean Air Act provided
Calpine the certainty it needed to invest
and create jobs now.
EPA’s greenhouse gas emission standards
for passenger vehicles and light trucks are a
bright spot.These vehicles are responsible
for 20 percent of carbon pollution and the
majority of our oil dependence and trade
imbalance. Starting with the 2012 model
year, automakers must improve the aver-
age fleet-wide efficiency of their cars and
passenger trucks by roughly 5 percent each
“By gutting the Clean Air Act,
the proposed legislation would
send a stark message that
our nation is abandoning the
most successful environmental
program in our history...” -Mary
Nichols, CARB
year until they reach the rough equivalent
of 35.5 miles a gallon in 2016.
The change is estimated to save 1.8
billion barrels of oil in the vehicles’
lifetime and cut carbon emissions by
960 million metric tons in the same
period—the equivalent of removing 50
million cars from the road. Because auto
manufacturers can meet the rules using
existing technologies, consumers will
not be paying much more for the more
efficient vehicles—perhaps spending an
extra $950 by 2016. And the fuel savings
over the life of the vehicle will more than
make up for those added costs, averaging
$3,000 in net savings.
The failure of Congress to address
carbon emissions is already undermining
America’s competitiveness and increasing
uncertainty for investors in the fast-growing
global market for clean and efficient energy
technologies. By gutting the Clean Air Act,
the proposed legislation would send a stark
message that our nation is abandoning the
most successful environmental program
in our history in what will ultimately be a
futile attempt to save the dinosaurs. •••
TOM RANDREGARDINGGREENBONDS411:<GREENBONDS.CA>
(continued from page 23)
these loans in the marketplace. You pick
the technologies; you pick the projects;
you pick the management teams; you do
all the due diligence—put liens on equip-
ment, make the loan defaults zero, and you
will get paid a fat amount of money come
Christmas time. If there is a loan default,
you will not.You lever the private sector’s
incentives and their expertise to get this
money into the marketplace.They will pick
the technology, they’ll vary technology
risk and amount of carbon reduction, and
they will do the right analysis to place that
money intelligently.
The net result is you have levered the
government’s risk rate to move capital into
the market that we needed.There is a social
good being done here. And for those of the
Chicago school,the market is not like a tiger or
a tree that we discover, the laws of which we
must adhere to.The market is more like a TV.
We engineered it; we invented it.We invented
debt, credit, default swaps, IPOs, and RASPs.
We engineered it.
The idea behind the green bond is you are
levering the government’s risk rate to engineer
a financial solution, to shape the market to
enable clean infrastructure to get built. The
key point is that it’s government backed but
privately run.Project finance is issued at about
a percent more than the government can
get. And the only cost of government is the
defaulted loans, and you mitigate that with
the right incentives to the private money
managers, liens on equipment, and liens on
power purchase agreements.These are largely
revenue-generating pieces of infrastructure,
not a bridge that cars traverse for free.These
generate revenue.You can put liens on those
power purchase agreements, and the single
success metric that you give the fund manager
is: lower carbon at a cost in dollars per ton.
For more
informa�on, visit:
vxcanada.ca/
verdexchange news SPRING 2011
We’ve costed this out. You can go to our
website, greenbonds.ca. At a 10 percent
default rate, which is higher than the market
is suggesting now because the spread on the
loans is not 10 percent, it’s about 7 percent
or about $10 a ton. If you lower that default
rate even more, you bring it down even
further. In my mind, this is the single lowest
cost way for the government to get involved
and shape the market to create demand for
the technologies that myself and my col-
leagues are generating and delivering to the
marketplace. It’s technology neutral.
Feed-in tariffs, which we have in Ontario,
are a wonderful start, but they pick
technologies, right? They are deciding
in advance which technologies are the
winners. This does not. And if you do it
at a federal level—so the United States
government issues a couple hundred
billion dollars of this low-cost debt—you
now have all the states competing to build
market conditions that are most conducive
to getting that money. Because the money
mangers are going to look at Texas or
California or Alabama and say, what is the
jurisdiction that gives me the least prob-
ability of loan defaults?
States that have feed-in tariffs, for
example, would automatically get a lot of
money, because the changes of defaulting
are very low when you have a guaranteed,
publicly-backed price. But that’s inde-
pendent. States can decide how they are
going to shape their own markets. The
federal government just sits there and
says, “Now you go and compete for this
money, and the private sector will decide
who gets it.”
It’s a wonderful interplay between federal
and state jurisdictions. This idea picks up
where the equity finance drops off. •••
25
verdexchange news SPRING 2011
KELLY: SMART GRID TECHNOLOGY IS MORE AFFORDABLE, ACCESSIBLE THAN EVER
(continued from back page)
No.The reason we couldn’t give a smart grid
to you is because to do so requires a three-
legged stool, and we needed a convergence
of three things. First, the development of
sophisticated power electronics—really the
province of electrical engineering guys. We
had most of that hooked together with the
emergence of ubiquitous,high speed,low cost
communication.Second,I had to be able to get
everything to talk to everything.At one time,
the cost of doing that vastly overwhelmed the
benefits.I looked at a project not long ago that
required $20 million worth of equipment to
put phaser measurement units out around the
grid.Tremendously high potential. If they had
had them in the Northeast, there would have
been no blackout.That’s how good it is.
“Ideally, a smart grid...can integrate the renewable resources and do the
distributive generation and the storage and allow customer choice and have
vehicle-to-grid and allow you to react to pricing signals and pick your own
carbon footprint...” -Jim Kelly, SCE
To put $20 million worth of these high tech
units out there that worked, I needed $300
million worth of fiber optic cable to connect
them. Nonstarter. How am I going to connect
them over the existing public networks of
both wireless and wired? I needed this ubiq-
uitous high bandwidth, low cost communica-
tion. The third leg of stool was I needed the
true emergence of low-cost, readily available,
extremely high-power computing, because
to make the grid smarter, you have to receive
massive, massive amounts of data and be able
to act on it rapidly.
Depending on what your field of science
is, the timeframes that I’ll now discuss
seem either incredibly short or maybe
incredibly long if you’re a physicist. But
typically, to do the stuff I have to do on
the grid to prevent the grid from doing
bad things (bad things usually manifest
by your lights going out, right?), I’ve got
to go through a protocol or a sequence.
We’ve been simplifying this for about ten
or 15 years.
Ideally, a smart grid that can integrate the
renewable resources and do the distribu-
26
tive generation and the storage and allow
customer choice and have vehicle-to-grid
and allow you to react to pricing signals and
pick your own carbon footprint and all those
things you want to do has to be able to do
the following sequence. When something
happens on the grid, good or bad, at a very
large number of sensing locations—for
Southern California Edison’s system, my
dream would be to have 150 million embed-
ded network sensors—they are being polled
or pushing to me, actively, for most of them,
30 times per second. Do the math...Very
very large numbers. Exponents, gigantic.
This data,and that’s all it is,is flowing in.I’ve
got to be able to take that incoming data and
do these steps. I have to identify anomalies. I
have to analyze them. I have to isolate them.
That’s a big deal,right?The Northeast blackout
was a little tiny deal and it cascaded because
each successive piece of the system did
exactly what it was supposed to do.“Oops, I
sense a fault, open the circuit.”And of course
the bigger circuit upstream said,“Oh my god,
I sense four faults, open that circuit.” Pretty
soon,we had the entire northeast blacked out.
Can’t have that. I’ve got to identify, analyze,
isolate, box off, remediate (because I want to
grid to be self-healing, so re-route the power
flows so that the minimum possible number
of people are impacted), and then report to
humans what I’ve done. That’s the last step,
not the first.
The reason is, typically to avoid cascading
outages and big problems on the grid I have to
do those five steps in four cycles,one fifteenth
of a second, over what could be 600 miles.An
incredible amount of high-speed processing
has to take place to turn vast volumes of data
into actionable control information.
Now I can afford to do that, because com-
puter-processing power is cheap, and I can
put it everywhere,distributed and centralized
all over and everywhere in between.I couldn’t
do that a few years ago.The smart grid really
is the convergence of those things—the
power electronics,the high power,high speed
computing, and the ubiquitous high-speed
communication coming together to enable
me to apply digital technologies across this
vast physical grid.
What is so hard about that? If you’re a tech-
nologist,you say,“Well,you know,I guess that’s
pretty tough, but we kind of know how to do
all that stuff.” What are the other impediments?
Why can’t we do more of it?”
The other impediments go to some of the
interesting policy considerations that we face
over time. We have a surprisingly balkanized
U.S.electric grid.The easiest thing in the world
is building a grid in a green space—to walk
into a country that has nothing and build
a grid, because you can make it just what
you want.You can make it really cool for the
money you invest.
In the United States,we’ve done an amazing
job on the electric grid (make no mistake,
when a group of historians got together not
too long ago and looked at all of the achieve-
ment of modern man,they said that the single
greatest achievement of the 20th century was
widespread electrification because without
that: no computers, no refrigeration, no night
shifts, no big industry, and none of the other
things that have led to human progress).
But we did it in little, balkanized segments,
where everyone got to design their own little
grid, and then we connected them all.There’s
virtually no uniformity across the grid. Hun-
dreds and hundreds and hundreds of provid-
ers were allowed to set their own standards.
Believe it or not, because you all think voltage
is only what you get out of that plug in the wall,
there are hundreds of different voltage levels
used around the country.There are hundreds
of different circuit designs—the distribution
system design in Downtown Los Angeles is
entirely different from the circuit design in
Pasadena or Arcadia. They are fundamentally
different, laid out in a whole different way by
engineers who had a different concept. You
have these hundreds of balkanized pieces that
all have to somehow interconnect.
(continued on page 27)
 verdexchange news SPRING 2011

SCE’S JIM KELLY: GRID INVESTMENTS MUST ‘LAST’ 50-100 YEARS

(continued from page 26)

The fundamental premise in the utility
space—why do you have, for example,
regulated public utilities? Why don’t we just
say,“Ok,competition,everybody who wants
to can go out and provide electricity to
whoever they want!”There are some of you
who probably say,“Well yeah, we ought to
do that!”But remember,the reason that elec-
“...if you think about that sort of jarring juxtaposition between the old
and the new, it tells us that the real impediments to a smarter grid are
really not going to be whether or not the widget you’re working on works.
It’s going to be these policy-driven questions, and questions that are
driven by the dynamics of developing digital technologies.”
tricity is considered a regulated monopoly
function or a public good was because of
the vast amount of infrastructure that had
to be installed to enable it. It’s easy to come
afterward and ride on that infrastructure, as
we saw in the phone space.The first mover
has to have some way, if you invest billions,
hundreds of billions,and in the United States,
trillions of dollars, to get the infrastructure
in place.
The fundamental regulatory compact is
that we say, utilities get to do this, and we
pay them back over the life of the asset. It’s
not a profit margin.They get paid back over
the life of the asset as if they’d invested in
a bank. That’s the fundamental premise of
how utility ratemaking works.
So utilities put in very long-lived, very
durable, principally electromechanical, old
school stuff that would run forever. Kind of
sounds like the old phone business with
copper wire, right? That stuff a) has to be
paid for and b) is incredibly expensive and
messy to replace one its been installed.
We’ve got to take these two paradigms
that are crashing head-on. I like to say that
this is when Olm’s law meets Moore’s law...
you have billions and billions of dollars of
imbedded network.To replace it, am I going
to tear all of your streets up and let you be
without power for days, weeks, months,
while I change things out? Or, am I going to
do it incrementally?
When I do it incrementally, am I going
to replace very reliable, long-lived electro-
mechanical machines with very short-lived
but very cool digital machines? In my busi-
ness, it is not uncommon to run a piece of
machinery, with very little exception, for 75
years.I have a transformer at Bailey substation
right now that has been running continuously
for 77 years. I’ve had a spare for when it fails
sitting there for 30 years. 30 years! The spare
is old! That’s the kind of equipment we put
in and the kind of reliability we sought. It
wasn’t super efficient,and it wasn’t real smart,
although we’ve retrofitted it with some good-
ies. But it lasted a really long time.
If you look at that kind of a paradigm
that says to make those investments and
recover your costs over the life of the asset,
think how interesting it is for U.S. custom-
ers to suddenly think of a world where the
electric system is driven principally by com-
puters. Let me ask you this question: How
soon after you bought it was your computer
obsolete? Two seconds, a year, somewhere
in there, right? A pretty narrow band. If I
said to you,“In the interests of keeping with
the deal we have and conserving costs and
being prudent and good stewards, you’re
going to have to use your current computer
for probably about 20 years, okay?” Why
would you laugh, though? I agree with you,
it’s laughable, but why? Why is it funny?
Because it’s not cool. But more than that,
because you know that in about four or
five years, nothing will work on it anymore,
right? Think about that notion in a world
of things that last 50, 75, or in the case of
my hydroelectric system, over 100 years.
Contrast that with the world of incredibly
high performance and obsolescence. How
am I going to mesh those?
One of the big takeaways I wanted to give
you is if you think about that sort of jarring
juxtaposition between the old and the new, it
tells us that the real impediments to a smarter
grid are not going to be whether or not the
widget you’re working on works.You’ll make
it work or somebody else will. It’s going to be
these policy-driven questions, and questions
that are driven by the dynamics of developing
digital technologies.
How do we enable a grid to get smarter
when its fundamental cost-recovery concept
is based on very large, very long-lived capital
investment? Would you pay, given what you
know about the grid wherever you live, if you
said you can have a way smarter grid,but it will
cost you twice as much on your monthly bill?
How smart does it need to be? Your lights just
generally come on when you want them to
come on, right? Let’s face it, reliability is very
high, outages are very infrequent. They are
usually caused by external events: car ran into
pole or fire burnt down stuff.Most of the time,
you don’t think about it; it just works.
If I said that I can give you way smarter, but
you have to pay twice as much, most of you
would say, “Well, I don’t need that.” See the
problem?
The second thing is that in this balkanized
grid across the United States, where there
were no consistent requirements, whatever
you make, your latest widget, you’re going to
have to worry about backward compatibility.
It needs to plug and play with stuff that’s
years old...What are you going to do? Because
I can’t replace it all. That’s a 20- or 30-year
venture.You need to be backward compatible
with everything, forward compatible with
everything to come,last a really long time,and
if you want to really change the smart grid,
get involved with the bodies that are setting
standards for protocols and communication
between these devices...If we don’t get the
standards right, we’ll never make the smart
grid work. Certainly not cost effectively.
I’ve been told “Well, that’ll never come to
pass. To many companies, too many ideas”...
Standardization, backward compatibility, and
plug and play—if we don’t get that, we can’t
apply all the cool stuff that all of you are work-
ing on the a grid in a cost effective way. •••
27
verdexchange news SPRING 2011

SMART GRID

SCE’S JIM KELLY ON THE CHALLENGES OF OFFERING A ‘SMARTER GRID’

IN PLACE OF TODAY’S ‘DUMBER’ GRID
Jim Kelly, senior vice president of Regulatory and Environmental Policy for Southern California Edison, delivered
the following keynote address to the May 2011 CalTech/MIT Enterprise Forum. In the keynote, Kelly details the
fun and frustration of the process of building-out a smart electricity grid for California electricity consumers. In
the end, Kelly concludes that public policy is the major impediment to a successful build-out of smarter grid
system—not the widgets and infrastructure investments and innovations that the lay public might suspect.

JIM KELLY

Jim Kelly (SCE): There are a couple of
problems with the notion of a smart grid.
The first is the presumption, when we say
smart grid, that we must have a dumb grid
now.We have far from it.The current electric
grid is one of the most complex integrated
machines on Earth.It is way smart,but it can
be way smarter. That’s why I like the title
“A Smarter Grid.” The second thing is that
when we talk about a smart grid, it tends
to be one of those Lewis Carroll things.
If you ever read Alice in Wonderland, one
of the characters says, “that’s what I like
about words, they can mean anything I
want them to.”
When you ask, what is a smart grid...the
basic answer you hear from a lot of policy
makers is,“I don’t really know what a smart
grid is,but I want one.And I want mine to be
smarter than yours.”That’s human nature.
We hear a lot of responses from vendors
about smart grid.“Well, a smart grid means
my product.” A smart grid means smart
meters, which are kind of a misnomer,
right? A smart meter is really the fact that
we’re giving every customer a small com-
puter and communication device on the
wall of their home that, among its many
other functions, measures electricity.We’re
going to put smart meters in, and that’s the
smart grid. Or smart grid means electric
vehicles. Or smart grid means distributed
generation.That’s a trendy one right now.
Or smart grid means energy storage. Or
smart grid means—I like this one bet-
ter—embedded network sensing: every-
thing talking to everything, everywhere,
all the time, and new control systems to
more efficiently monitor or manage the
transmission system and, particularly, to
integrate renewable energy.
One of the great challenges for California some point, the light will come on.” We take
because we’re on the leading edge (or luna- for granted that somehow, instantaneously, I
tic fringe, depending on your viewpoint), make it for you. Not as easy, of course, as most
with our commitment to 33 percent renew- people think.
able energy,will mean solar and wind,which The smart grid is about taking this com-
are fundamentally stochastic resources that plex machine, with all these new variables
we have to somehow blend to meet the and new public policy factors, and figuring
demand for power. out how to make it do them better. I like to
Remember,the physics of our business are say that smart grid really started about 20
fairly unique.Think about a business where years ago for most of us who have been in
we must simultaneously match supply and this space because we were working on the
“Think about a business where we must simultaneously match supply and
demand—24 hours a day, 365 days a year. That’s already pretty daunting,
but you could say a lot of businesses do that. But we have to simultaneously
match supply and demand every minute of every day with a product that
cannot be stored—not cost effectively, not at scale.”
demand—24 hours a day, 365 days a year. things that people now consider smart grid:
That’s already pretty daunting,but you could highly automated digital relaying devices,
say a lot of businesses do that. We have to embedded network sensing (a little crude
simultaneously match supply and demand back then but we had it), and synchronous
every minute of every day with a product phaser measurement to measure the state
that cannot be stored—not cost effectively, of the system of the entire grid at any given
not at scale.You have batteries and so forth, time—sophisticated engineer kind of tools.
but you don’t have cost effective energy We did them on the blackboard first.Then
storage. we did them on the test bench, and they
That means that every time you flip your were cool. But we couldn’t give them to you.
light switch on, I make it to order for you. Why couldn’t we give them to you? What
Always served hot, right? I can’t inventory suddenly happened? Did somebody have a
the product.Imagine that constant matching Eureka! moment and say, “I know! We need
of supply and demand in real time over—in a smart grid!”
our case, a 50,000-square-mile grid serving (continued on page 26)
14.5 million people.And now you interject
one-third fundamentally stochastic and very SAVE THE DATE
difficult to predict resources. And you will VX2012 LOS ANGELES
not be very tolerant of me if you flip the JANUARY 22-24, 2011
switch on your wall and my response is “at www.verdexchange.org

28